ESRI warns of ‘painful correction’ as it reveals how much house prices are overvalued [Video]

Residential properties in Ireland are overvalued by 8-10%, raising the prospect of a “painful correction” similar to the last housing market crash, according to the Economic and Social Research Institute (ESRI).

House prices nationally have increased more than 10% this year and are now 13.4% higher than their pre-crash peak in April 2007, with the ESRI noting concern about the sustainability of current price levels in its latest quarterly economic commentary.

The research group said that the property market is now showing vulnerability across a number of indicators, including overvaluation relative to fundamentals as well as price-to-income and price-to-rent, although the latter two are still well below 2008.

The ESRI also identified vulnerabilities in terms of the level of household indebtedness, debt to service ratio (DSR), and the indicator related to lending spreads.

“The elevated level of vulnerability is likely driven solely by the higher interest rate environment,” the ESRI report said, noting that all over indicators display …