Strong growth in per capita real disposable incomes and favourable demographic and household formation trends, boosted by sizeable net immigration, underpinned some of the increase in demand. However, worryingly, the rise in even basic valuation measures, such as the ratio of house prices to disposable incomes, was considerable. There were also other influences at work.
The interest rate convergence process as a result of the move to EMU brought about a sharp fall in nominal short-term interest rates, with ex-post real interest rates further impacted by the higher rates of Irish inflation relative to the euro area.