New ESRI study warns of overvalued housing market

The Economic and Social Research Institute (ESRI) has published its latest Quarterly Economic Commentary, which includes a warning that the residential property market in Ireland may be overvalued by 7%. This is a significant increase from the 5.5% overvaluation the ESRI estimated just three months ago.

The report notes that savings built up during the pandemic may have contributed to the demand for housing, but that this is not a sustainable long-term trend. The ESRI predicts that price growth will slow down significantly in the coming months, and that increases in interest rates will have a negative impact on house prices. However, the study also suggests that there are factors which could prop up prices in the short term.

Interest rates expected to rise
Another factor which is likely to put pressure on house prices is expected increases in interest rates. With vaccinations underway and an end to restrictions in sight, economists are predicting that interest rates will begin to rise later this year as the economy begins to recover from the pandemic. This will make borrowing more expensive and reduce affordability for buyers, particularly first-time buyers who are already facing challenges entering the market.