The Other Hand 'House prices 10% over-valued". What does this mean? Anything?
Dec 13, 2024
Recent research shows house prices in Ireland may be overvalued by 8% to 10%, raising concerns about future market stability. The podcast delves into the complexities of housing market evaluations, considering factors like household debt and economic shocks. It also tackles the puzzling decline in inflation amidst rising living costs, particularly for necessities. Additionally, the discussion highlights Greece's economic recovery and its solar energy leadership, alongside the impact of U.S. tariffs on Ireland’s trade balance.
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House Price Overvaluation
- The ESRI model suggests Irish house prices were 8-10% overvalued in Q3 2024, based on factors like income, interest rates, and housing stock.
- This overvaluation creates vulnerability, particularly to labor market shocks, echoing concerns from the 2007-2008 crisis.
Overvaluation and Housing Supply
- Precisely determining house price overvaluation is difficult due to complex market factors and potential model limitations.
- Focusing on increasing housing supply is more effective than relying on potentially spurious overvaluation models.
Addressing Overvaluation
- Even if house prices are overvalued, there are limited policy options available given ECB control and strong demand.
- Tightening lending restrictions could help control demand, but increasing housing supply remains crucial.