Research from the Economic and Social Research Institute (ESRI) has shown that Irish house prices are overvalued by up to 10 per cent.
Its latest quarterly bulletin also showed that an increasing number of households are carrying "elevated" levels of mortgage debt.
The think tank said the acceleration in house prices this year had led to concerns about the sustainability of such increases and whether it would lead to “a painful correction” similar to the one that followed the 2008 financial crisis, The Irish Times reported.
It said while the Irish economy is performing well, the level of debt leaves people vulnerable in the event of an economic shock.
In its analysis, the ESRI modelled where house prices should be on the basis of various economic and demographic factors such as income, population, credit and interest rates.
It found that prices here were overvalued by somewhere in the region of 8-10 per cent.
ESRI research professor, Kieran McQuinn, said: “That’s not as high as it was during the time of the global financial crisis, but it does mean that it merits attention.
“The larger the degree of overvaluation the greater the risk of significant correction.
“Broadly speaking, the market isn’t anywhere near the stressed levels seen in 2008, but there are one of two developments worth keeping an eye on."
McQuinn noted that average loan to income ratios had risen sharply in recent years, having been stable for over a decade.
“What that means is that these households are potentially more susceptible to financial or employment shocks,” he said.
In its report, the ESRI said, on a wider level, it also raises question marks around the capability of certain cohorts of the population to own homes.
The continuous increase in Irish house prices since mid- 2013 means that prices are now 13 per cent higher than the pre-crash peak in April 2007.
The annual rate of house price growth is now running at 10 per cent, driven by a combination of factors including ongoing supply shortages, faster-than-expected population growth, real wage growth and the anticipation of further interest rate reductions.
