This week there was a sharp intake of breath across the nation when the news broke that the property market could be up overvalued by up to 10%.
The assessment by the Economic and Social Research Institute was the first warning of its kind since the value of houses and apartments began to climb in 2013 after the financial collapse.
The market has increased by 155% since then and is 14% up on its peak in from the last boom in April 2007.
Prices are now accelerating at a steady clip of 10% per annum.
So is the market getting too frothy?
Since the crash, the Central Bank, which regulates the mortgage system, has been completely overhauled.
It has introduced rules to prevent borrowers taking on excessively large loans as they did in the last boom.
Now owner-occupiers must have a 10% deposit.
Purchasers are also restricted to borrowing 3.5 times their incomes.
In other words, if a couple have a joint income of €100,000 they can borrow up to €350,000.
But in 2022 the Central Bank relaxed this rule for first time buyers to four times their income, a move which was criticised as premature by the ESRI.
Last week the bank published a report on its lending rules and said growth in house prices had not been driven by too much credit.
But this week the ESRI warned that an increasing number of Irish households are facing “elevated” borrowing levels and would be “vulnerable” if their incomes fell.
Chillingly, it said: “The accelerated increase in house prices experienced so far in 2024 has led to concerns in the domestic market about the sustainability of such increases and the prospect of a painful correction such as that witnessed between 2007 and 2012”.
“The Central Bank defended its supervision of the mortgage market following the ESRI’s warning and said there were “no signs of excessive risk-taking”.
But the bank’s statement also had a subtle swipe at the outgoing coalition Government’s housing policy.
Many observers have raised questions about decisions to ramp up the Help to Buy and First Homes schemes because they may be adding to property inflation by throwing more money at the market, while also trying to help buyers get a home.
In the Central Bank’s list of reasons explaining why demand for housing is continuing to remain strong it included “government initiatives”.
But other factors have been driving up the market too.
There has been a massive shortage of new housing, with about 33,000 homes built last year and a similar level this year, when more than 60,000 need to be built to meet pent-up demand and growth in the population.
The economic backdrop is driving demand as jobs are plentiful, while growth is strong and will remain robust.
And the European Central Bank has been cutting interest rates which brings down mortgage repayments and will add to property prices.
The ESRI has not suggested that the market is as overvalued as it was prior to 2007.
This time, tighter lending rules mean borrowers have more equity in their homes and are better insulated from negative equity if prices fall.
But nothing is stopping the market from continuing to rise.
The further it climbs, the riskier it becomes for buyers.
