Scenarios for Irish House Prices

Gerard Kennedy and Kieran McQuinn
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Gerard Kennedy: Central Bank of Ireland

No 02/EL/11, Economic Letters from Central Bank of Ireland

Abstract: In this note, a recently published model of the Irish residential mortgage market is used to generate likely scenarios for Irish house prices out to 2013. The model allows for the interaction between house prices and mortgage credit as well as key macroeconomic variables and housing supply. Future prices based on such models typically tend to assume that, where significant overvaluation has occured, prices correct back to some long-run equilibrium path. However, analysis of housing booms in a cross-country context reveals that prices often tend to overcorrect following a sustained house price boom. We discuss the results from our model in this context.

Date: 2011-05
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