Irish Property Prices Overvalued by Up to 10%, Warns ESRI
Irish property prices are estimated to be overvalued by 8% to 10%, according to the Economic and Social Research Institute (ESRI) in its latest Quarterly Economic Commentary. The institute evaluated housing and apartment values by considering factors such as prices, disposable incomes, interest rates, housing supply, and the population share of those aged 25 to 44, the primary house-buying demographic.
Vulnerability of Households
The ESRI highlighted that a growing number of households are carrying high levels of mortgage debt, leaving them exposed to potential risks such as unemployment spikes or wage declines. The sharp increase in house prices throughout 2024 has sparked concerns about sustainability and the risk of a market correction akin to the 2007-2012 downturn.
Central Bank Urged to Maintain Prudence
While the ESRI noted that the current growth in credit is not as significant as it was before the last housing crash, it emphasized the need for the Central Bank to exercise vigilance and caution when reviewing mortgage lending rules.
Rising Property Prices and Economic Implications
According to the Central Statistics Office, property prices have surged 10% over the past year and now exceed the 2007 peak by 14%. The ESRI has also raised alarms about external risks, particularly the potential economic fallout from trade policies expected under Donald Trump's possible return to the White House.
If U.S. tariffs are introduced, the ESRI warns, global economic growth could shrink by 3.2% in 2025, impacting Ireland through reduced exports and multinational retrenchment. This could affect wages, corporate tax revenue, and overall economic output, potentially necessitating government spending cuts.
Positive Economic Outlook
Despite these risks, the ESRI remains optimistic about Ireland's economic prospects. It forecasts domestic economic growth of 3.2% this year and 4% in 2025. Employment is expected to remain strong, with real wages—adjusted for inflation—projected to rise by 4% next year.
Budget 2025 has been described as broadly progressive, with the lowest-earning households seeing modest increases in disposable income. Overall, the ESRI’s analysis underscores a strong but cautious outlook for the Irish economy.
Source: ESRI