Experts rubbish Bank's claims that homes are €50k underpriced
EXPERTS warned property prices will fall further - despite claims by the Central Bank that they are already undervalued.
The bank said prices are undervalued by up to €50,000.
A new report into the housing situation here has found that the price has been overcorrected by between 12 to 26pc.
Consumers are holding back on spending on property because they expect further falls, the banks' economists, who carried out the research into Why Are Irish House Prices Still Falling?, said.
And there is an uncertain economic outlook in Ireland which is also halting progress on property.
A measly 11,000 new mortgages were issued last year, the report outlines, which is a 30pc drop on 2010.
In 2006, as many as 110,000 mortgages were issued.
However, economist David McWilliams anticipates that house prices will fall another 15pc to 20pc.
"I think the problem for the Central Bank is the fact that house prices now are falling sufficiently close to their worst case scenario. If house prices keep falling, the banks will have to go back to look for capital.
"And I don't believe politically, financially or morally that Irish people have the stomach for this. The balance sheet of the middle class in Ireland is broken.
"On one side of the balance sheet we have assets which are falling in value -- houses. And on the other side we have debt which has remained firm in terms of monthly costs."
In standard economics, when the price falls, the demand rises, the economist outlined. "But in this balance sheet recession that we have -- when the price falls, the demand falls. The economy is trapped.
"It seems to me that if you look around the world, investors will not come back into the market until yields are sufficiently high. The only way the economy can come back is if the investors get involved again."
Mr McWilliams believes that the Central Bank needs to go to the ECB and look for a serious deal on mortgages, which means getting the mortgage book off the banks, otherwise they will continue to be zombie banks.
"The way you get out of an issue like this -- one is house prices have to fall to get that yield to rise for investors. Number two, the only way you will get the average person to start spending again, at the core of this is a growth problem for the economy," he said.