Why are Irish house prices still falling?

Gerard Kennedy and Kieran McQuinn from the Central Bank give their view on where house prices should be in Ireland, and why they haven’t stopped falling in this new paper (.pdf). This paper is a kind of update to Morgan Kelly’s 2007 piece on the likely extent of house price falls (.pdf) as well as other papers.

From the abstract of Kennedy and McQuinn, then:

In this note, the continued fall in Irish house prices is examined. The increased rate of decline in 2011 resulted in Irish prices being almost 50 per cent down from peak levels of mid 2007. Accordingly, in over forty years of house price data, the fall is now one of the most significant across the OECD. We outline the current state of activity in the housing market and, using a suite of models, assess whether the fall in house prices is in line with that suggested by current fundamental factors within the Irish economy. Given that the analysis suggests prices may have overcorrected since 2010 we discuss possible reasons for this continued decline.