The ESRI, in a report just published, have claimed that house prices are overvalued by 7%. However, it goes on to say that it is too early to say if prices will fall or correct or not.
That, I find surprising. For if prices are too high and property is overvalued surely buyers will cause prices to fall by paying less.
The leading economist involved in this report said it was too early to say if house prices would fall or not but the substantial increases we have seen in the recent past cannot continue into the future.
I do not believe you need an economist’s report to draw that conclusion, quite frankly.
The second surprising aspect of the report is how the ESRI arrive at the value of a house. They make their calculations based on a number of factors including demographic factors such as income, population, credit availability and interest rates.
I always believed that the value of a house, or any property, was whatever a willing buyer was prepared to pay for it. Yes, it is arguable that what a willing buyer may be prepared to pay will be influenced by the factors that the ESRI have relied on. But not always.
Moreover, the ESRI report does not appear to factor into their calculations the weighing up by the individual buyer as to paying rent versus owning their own property, the need to cater for a growing family, and the emotional perception that an investment in bricks and mortar for a person starting out in the early stages of their lives and careers may prove to be a sound, sensible investment.