THERE is a strong relationship between unemployment rates and house prices, a Central Bank study has found.
Central Bank economist Kieran McQuinn told the conference How to Fix Distressed Property Markets? that he was struck by the strength of the relationship between unemployment and house prices.
He said that between 1983 and 2011 the jobless figure and property prices had a significantly inverse relationship, and that unemployment was a good proxy for market sentiment.
"As a measure of potential credit risk, unemployment is especially relevant in the Irish case, where the post 2007 escalation in the rate of those out of work has gone hand in hand with the growing arrears problem," the study said.
The paper states that policy responses to the distressed mortgage problem have been "somewhat laboured in implementation and hindered by legislative uncertainty".
"It is apparent that Irish financial institutions have struggled with working through the distressed nature of their loan book," it stated.
The paper also said that a €2bn stimulus package could yield savings of more than €600m.
The study said that the unemployment rate would be half a percent lower at the end of 2014 than forecast, and that house prices would be about 2pc higher.
It said that when the loss rates are applied for the two different forecasts, the overall difference and saving in bank capital loss terms as a result of the stimulus would be just over €660m.
The scale of the operation to confront the increasing number of mortgaged households for the Irish institutions was daunting, it said. The paper also pointed out that legislative uncertainty has "impeded a more efficient resolution of the crisis."