Given the importance of the housing market for financial stability, it is instructive to explore whether and how the build-up of imbalances in the Irish property sector before the crisis appeared on various macro prudential indicators. One conclusion we can draw from this exercise is that even simple measures can be useful for guarding against a build-up of risk.
These two panels in Figure 1 show indexed prices, rents, and price-to-rent ratios for both residential property on the left and commercial property on the right. A price-to-rent ratio can be thought of as the property market equivalent of the price-earnings ratio in equity markets.