IRISH HOUSE prices were undervalued by 12-26 per cent as of the end of last year, researchers at the Central Bank claimed yesterday.
In a study entitled Why Are Irish House Prices Still Falling? two of the bank’s economists attributed the continued decline in house prices to a lack of investor confidence, negative future house-price expectations and an uncertain macroeconomic outlook.
Additionally, “the requirement for substantial deleveraging within the Irish financial system and the associated issue of mortgage credit availability are also considered as significant reasons for the decline”, according to the report.
Just 11,000 new mortgages were issued last year, it says, down 30 per cent on 2010. In 2006, 10 times as many mortgages were issued.
Responding to the report, chairman of the Consumers’ Association of Ireland, Michael Kilcoyne, said he would take anything the Central Bank had to say “with a pinch of salt”. Banking practices had caused houses to be overvalued in the first place, he added.
Separate figures published yesterday by the Central Bank showed that mortgage lending by the banks collectively continued to decline in March, a trend that has been in evidence since 2008.
Rachel Doyle, chief operations officer with Professional Insurance Brokers Association, said restrictive lending by banks was one of the main causes of overcorrection. She added that half of her association’s 870 members believed the demand for mortgages was growing.
The bank’s researchers used four models to assess property prices. One model found prices were 26 per cent below what economic fundamentals in the economy would warrant.
Two other models found prices were undervalued by 16-18 per cent. A fourth model suggested they were undervalued by 12 per cent. The Central Bank researchers analysed the period up to the final quarter of last year. More recent figures show the decline in prices continued into 2012.