Central Bank: House prices ‘not overvalued’

House prices, which are expected to rise by a further 10% this year, are “not currently overvalued”, according to the Central Bank.

While still over 30% below peak pre-recession levels, prices rose 4.3% in the first quarter of this year and are expected to show a 10% increase for the year as a whole.

Latest CSO figures showed a monthly rise of 1.1% in April and an annualised rise of nearly 11%.

Speaking at the publication of the Central Bank’s macro-financial review — which highlights global and domestic risks to the Irish economy — the regulator’s head of financial stability, Mark Cassidy, rejected fears of another housing bubble forming and said that price movements are not out of control. “One method we look at is the level of house prices compared to where we think they should be at this stage,” he said.

“The work we have published, that we will be updating, suggests that house prices are not currently overvalued, albeit that price rises are quite strong.”

In its latest report, the Central Bank notes the “steadily” rising nature of prices since late 2016 and recognises that further hikes are expected over the medium term.

“A scarcity of housing in certain locations is contributing to price and rental developments,” it said.

“There is some uncertainty surrounding official housing completion data, at present, but the number of new units being built and likely to be constructed over the medium term is below demand.”

The Central Bank said its mortgage-lending rules — introduced in 2015 and reviewed late last year — are there to “strengthen households’ and banks’ resilience to shocks and curb price-credit spirals in the housing market”.

The Central Bank still sees the economy achieving strong growth this year and next, saying GDP should grow by 3.5% this year and by 3.2% in 2018.

However, it outlined a number of domestic and external threats to the maintaining of that growth.

Domestically, it flagged household debt as a concern, saying that while in decline, it remains highly indebted, leaving many households vulnerable to interest rate rises.

“Those in the 30 to 44 age category have high debt-to-income ratios relative to other age cohorts and by international comparison,” it said.

External threats to Irish growth, according to the Central Bank, include changes to international tax rules and trade policies, as well as Brexit.

Britain leaving the EU is likely to have a negative and material effect on Ireland both in the near and long term, it said.

“To date, Brexit’s effects have been predominantly through the depreciation of sterling against the euro,” said the Central Bank.

“Exchange rate effects, changes in UK demand, and any new barriers to trade arising from Brexit, as well as any changes to broader international taxation and trade arrangements, could have an adverse effect on the Irish economy.”

Regarding the jobs market, the Central Bank noted the most recent decline — to 6.4% — in Ireland’s unemployment rate, but stressed that “structural issues” remain in the labour market, “including a persistently high unemployment rate among those out of work for four years or more”.