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SOME READERS MIGHT remember that two years ago, it was announced that Irish houses were likely 7% overvalued.
Since then, property values have risen by a further 11% – so about 18% overvalued, right?
Well, in recent weeks it was announced once again that house prices are overvalued; but ‘only’ by 10%.
Wait, what? What’s going on?
Well, let’s take a look at why Irish house prices were called overvalued in the first place, why they rose in spite of that – and why they will likely still rise even further.
The observation that Irish property prices were probably too high was made in a paper published in October 2022 by the ESRI.
This was based on a model used by researchers which compares property prices to disposable income and mortgage interest rates.
Researchers for the think-tank said they thought two key factors were behind what they considered to be the over-valuation of Irish house prices:
There is a rising share of ‘non-household’ buyers in the market. This category covers the likes of investment funds and state-linked organisations, such as local councils.
The boom in household savings over Covid gave some buyers increased firepower to fuel higher prices.
The ESRI said house price inflation would likely drop off in the medium term as people spent their pandemic savings and as mortgages rates were expected to rise sharply.
‘It is clear, going forward, that the recent surge in savings and wealth is not sustainable over the medium term,’ the paper said.
‘Therefore, changes in house prices will become re-aligned with movements in income over [the medium term]… This means that recent increases in house prices are likely to moderate substantially over the short to medium term.’
Since then, the researchers have been proven wrong, as house prices have once again increased substantially. This increase has come even as interest rates did indeed surge, making mortgages more expensive.
So, why did this happen?
The factors that influence people’s decision to buy
Well, a new study published by the ESRI has tried to answer this question.
Researchers still consider there to be two fundamental factors in determining property values: income levels and interest rates.
So if interest rates surged since October 2022 – in other words, just as the last study was published – why did property price inflation accelerate?
This is where the new part of the study comes in. Basically, the ESRI thinks consumers’ expectations play a major role in property prices. If people expect house prices to rise, they’ll behave in a certain way [buying more property] which actually will cause them to rise.
The ESRI thinks three main variables factor into consumer expectations: expected trends around house prices, household income, and inflation.
It tested this idea using a model looking at historical housing data and found there was a statistically significant link between income expectations, expected house price growth and actual house price growth.
By contrast, while interest rates did have an impact, it was reduced compared to the other two.
‘Households are more influenced by expected changes in real interest rates than in changes in the actual rate,’ the study said.
Interest rates started to surge from October 2022, but the fact that they would rise had been well-flagged for months in the media.
This idea has other implications – namely, that house prices sometimes behave in a way which is ‘non-rational’.
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‘The tendency for households to have house price expectations that are different from rational expectations, which are often associated with efficient markets, can exacerbate the variability of house price movements,’ the ESRI said.
‘While actual movements in real interest rates do not appear to significantly impact changes in house prices, expected changes in real interest rates do.
‘Periods of significant house price appreciation, which are maybe initially due to variations in fundamental variables in the housing market, can then be amplified by alternative house price expectations among consumers.’
Why house prices continued to rise, despite all this
What does all of this mean?
Basically, even though house prices may have been overvalued in 2022, there was a reason that they continued to rise.
The ESRI expected at the time that interest rate rises which had started to kick in would help lower prices.
In reality, what they’ve found in the 2024 study was that consumers had already priced in these rises before they started to take effect. So the actual impact when they came into effect was more muted than expected.
Another factor is the Central Bank easing mortgage lending rules, letting people borrow more money to buy houses.
This was announced in October 2022, only a few days after the ESRI paper was published.
Since then, there has been a rise in the levels of mortgage debt, which the ESRI recently found are back near Celtic Tiger levels.
This has also resulted in homeowners spending a high proportion – 33% - of their disposable income on mortgage repayments. Again, this was the highest level since the boom.
This has left many households vulnerable to risks such as any fall in real wages or increase in unemployment.
Houses are overvalued – but the ESRI still expects prices to keep rising
Ok, so given all that – can we finally say that Irish house prices are actually overvalued?
Well, as stated earlier, the ESRI’s model now puts it at 10%.
Perhaps the more important question: does the overvaluation mean that house prices will slow down now?
Well, clearly no, given that they already rose in 2022 after the ESRI’s initial prediction.
Again, there may be something which may not be considered in their 2024 analysis, like how consumer expectations and the impact of interest rates were not fully accounted for. Or there could be a change in external actors, like with the Central Bank loosening its lending rules.
But perhaps most importantly, the ESRI itself has said it still expects house prices to rise.
Why, if they also think they’re overvalued? Well, the Irish economy is still performing well. Real incomes are rising, which as we’ve learned, is a strong indicator of future house price rises.
The European Central Bank has also signalled it will continue its recent policy of cutting interest rates. Again, the rate cuts themselves may not have a major impact – but the anticipation of them might.
Then there’s also our old friend, housing supply – or, more accurately, lack of it. Ireland still isn’t building enough homes to meet current housing demand
Various estimates have put the number of homes needed annually at 52,000 a year, or even as high as 82,000.
New dwelling completions for 2024 are expected to finish somewhere between 33,000 and 36,000, so likely well below what is needed.
And that’s not even factoring in the backlog of homes needed from all the other years that Ireland has missed its housing targets, which makes the problem worse and worse with time.
So despite warnings of overvaluation, without a new external actor coming into play, don’t expect property price falls just yet.
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They need to have one decent station and one decent radio station. Drop the “stars” on six figure sums and stop thinking they can continue to go around in the style they’ve been accustomed to because their mini army of TV-SS men go around the country threatening the working people with jail unless they pay for this “service”. Which, I might add, a good chunk of people no longer use despite Pet Rabbit’s protestations to the contrary.
Hey don’t knock Fade Street. That’s exactly the kind of programme you need when a recession kicks in! A bunch of spoilt talentless rich kids sitting about eating lunch and gossiping. Top stuff from RTE
What about the product placement in Fair City? They must be raking it in with all their alcohol sponsorship. But then again RTE aired a series whinging about alcohol sponsorship in sports. I just don’t know what to believe any more.
Natural selection needs to come into play again here. Crap station, crap presenters, crap people running it. I know there is the new guy they got in from UK but, it’s time this station was sent to a farm down the country. Ya feel me?
Sure the plank done his 40 years. I bet he’s taking a full pension from the 2th of September. Sure it was a smart move why stay working for the state when he’d be paying dead money to a pension fund. The thiefin git!
The program quality is atrocious, but the public are still expected to pay an extortionate licence fee. I discovered that I knew the script off by heart,while Watching reeling in the years last night. Talk about overkill.
The 270 people they cut would have been people on modest wages that were in no position to lose their jobs. The big guns are above all of this restructuring. How nice it must be to be isolated from real world economics because of some outrageous tax on every citizen regardless of whether they use your service or not. If they made RTE products a PPV option on Sky/UPC for €160 a year I don’t think they’d get very many subscribers.
Nonsense. The vast majority of people in RTE don’t earn 6 figure salaries and are below 50,000 euro. It’s easy to check as RTE salaries are a matter of public record. It’s only when the media publish ‘averaged’ figures of total salaries of all workers, including all high earning management and celebrities, that deceptively pushes up the average worker’s salary when the truth is most people earn the average wage or just above.
I understood from ads running some months ago that RTE were pumping a couple of hundred million into the local economy, oh wait that was into the poskets of their fabulous ‘celebrities’ who are worth their weight in gold apparently, apart from the fact they’re endlessly interesting to listen to, talking about their jawdropping lives. I could watch Brendan O’Connor until my eyes bleed or my feet rot into the carpet, which ever comes first. I love their sense of self worth, so massive. How does Pat Kenny manage to drive a car at all, with a head as profound as his…telling his own truth, as he is told. Roll over and die RTE.
There is no need for RTE anymore. It’s time to ditch the Dervlas and Daithis. The organisation is still operating like Dept of Information matched with an appalingly corrupt foot soldiery. The stories I could (will) tell. Hello exxxx. Your la is tioching
Ah come on folks, I think we just should increase the TV license fee to keep paying the high wages for the likes of Miriam O’Callaghan and Ryan Tubridy, these presenters really so deserve it …
RTE should be down sized or else shutdown with its tv licence it is a millstone around the neck of the improvised Irish peasant.
Why do we have to pay a licence or labours broadcasting charge when RTE performing groups paid for out of lotto and the technology is available for all or part of out put to be pay per view
I don’t think they should shut down RTE what else is left ? TV3 is woeful’. We need a good quality independent national network. No ads, dump one of the channels and focus of factual programs. Ditch the soaps and the ‘do up your gaff’ rubbish.
Can’t remember if it was Saturday or Sunday evening of last week and they were showing ‘Daddy daycare’ as their big movie???has to have been repeated a million times, if its not that shit€ it’s ‘Jumanji’, repeat after repeat, Neville’s doorstep challenge is on AGAIN! …. Not to mention others
“And now on teilifis eireann for the first time on terrestrial televvision by a state sponsored, public subsidy supported, advertising market monopoly broadcaster beginning with R the July 2013 premier of Daddy fxxxking Daycare.”
Agree, RTE are spending licence money on programming that be got for free through a Freeview Sattellie. A public service broadcaster should have a remit to produce only home grown material. They they could of put it on the freesat service and we wouldn’t have needed SAORVIEW.
RTÉ lost 270 staff in 2012 with no appreciable dip in its characteristically low quality. Kinda begs the question what those people were doing in Montrose in the first place.
Because of the loss of staff, the ones that remain work harder, and for less money than they earned before. Ask anyone who works there.
Don’t just automatically undermine people’s work and presume you know everything. I’ve worked in RTE and know several people who continue to work there and my experience has been of people working their ass off under increasingly difficult conditions.
No doubt a few people there work hard but there is a tremendous, jaw dropping level of obfuscation and sh1t kicking goes on there. This mostly involves avoiding any real responsibility and blaming op’s. Put the fooker out of it’d misery now.
They get advertising revenue and state funding , and they manage to be making a loss, cmon they’re having a laugh. Privatise that ball of shit and get some real TV going there.
Love it when you hear RTE top brass echo thier top earners “we have to pay these wages so these talents stay with RTE and don’t go to the BBC or ITV. Because in reality the BBC or ITV would have picked them up years ago if they were that good. Cases in piont Terry Wogan, Graham Norton,Dara O Brine to name but three.
Some fantastic shows they’ve created through the years. Celebrity farm, winning streak, fair city, dont feed the gondolas, the bliZzard of odd, not to mention hipster loving Love/Hate. Worth every penny.
RTE have made loads of quality shows and they’d make much more if the likes of you payed your tv license.
Take Fair City for example. People like to put down the show without ever giving it a chance. The script writing and the subtlety of the character interaction is superb. Just take the complex character of Bob Charles.
I think RTE should develop their own sports channel, so that they could show more Galway race days and live coverage of RDS next week. More GAA action too
Rodrigo. That’s ridiculous. I’m an electrician in RTE and believe me we are NOT on 6 figure sums or anything like it. And believe me we have taken our fair share of wage cuts etc in recent years.
People think that because you work in RTE that you are overpaid, underworked and immune from what’s going in “the real world outside”. But again believe me we are struggling like everyone else. Sure there are some big hitters in the wages department, but that’s the same in all walks of life in all sectors.
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