Irish house prices were undervalued by close to 15 per cent in 2015, a new report from the European Commission shows. And despite recent price gains, the report suggests there is scope for prices to increase further.

In an analysis of macroeconomic imbalances in European Union member states, the report found property prices in Ireland were still recovering from undervalued levels, and remained undervalued by almost 15 per cent at the end of 2015. Ireland is one of seven countries with imbalances, alongside Germany, the Netherlands, Spain and Sweden.

Latest figures from the Central Statistics Office show the annual rate of residential property price inflation has picked up notably since June, and is now running at the fastest pace nationwide (7.3 per cent) in 15 months.

Room for growth

Austin Hughes, economist with KBC Bank, says that while price gains since last December will have narrowed the imbalance, there is still room for price growth.

“If the current pace of price increase is sustained to the end of this year, this would correct about half of the undervaluation estimated in the commission report. In turn, this would suggest that, in the absence of notably adverse shocks to the Irish economy in 2017, Irish house prices could see further solid gains,” he said.

Among the 19 countries surveyed in the report, significant price increases were noted in Sweden (35 per cent) and the UK (18 per cent), as they came on top of a substantial overvaluation gap, “fuelled by rising net credit flows to households”.

“These situations will therefore call for careful monitoring of future developments,” the commission said.

France, Italy and Portugal were among the countries found to have “excessive imbalances” according to the commission.