Since the financial crisis kicked off, Ireland has come to be seen as the good' peripheral eurozone nation.
While Greece and Spain seethe with anger, the Irish have put their heads down, accepted spending cuts and tax rises, and got on with it.
Now Ireland is being held up as the example of how austerity can work. There are signs of improvement in the economy. So much so that the latest cover of Time magazine proclaims 'The Celtic Comeback'.
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In particular, after a brutal collapse, which caused values to halve, things may be at last looking up for Irish property. The latest survey suggests that prices rose by the largest amount in five years in August.
But we're not so sure it's a good idea to buy into the idea of an Irish recovery here's why.
The truth about Irish house prices
We'd be wary of signs of a recovery in the Irish property market.
Like Britain's housing market, Ireland's is not uniform. In Britain prices are rising in London, but falling almost everywhere else. Ireland is the mirror image prices are rising in rural areas, but still falling in Dublin. In August, prices in the capital fell by another 0.5%.
And that's worth paying attention to. Because as David McNamara of Davy Stockbrokers argues, the rural property market is a poor guide to what is really happening. This is because it is "illiquid' and "dysfunctional".
What's happening is that, rather than cutting prices to where they would find buyers, heavily-indebted homeowners are choosing to stay in their property as long as lenders are willing to let them. This shortage of housing means that those who do want to buy in rural areas have to pay a premium to do so.
This mismatch between supply and demand is shown by the fact that mortgage lending and transactions outside Dublin are at historic lows.
It's not unlike the situation in Britain, where homeowners who can't afford to move or remortgage are only able to cling on to their homes for as long as interest rates remain near zero.
McNamara also warns that auction and portfolio sales suggest that the scale of the fall in Irish house prices may be even greater than official data recognises. Ulster Bank recently sold a package of apartments, along with some commercial property, at a price that was 70% below the 2007 peak, rather than the 50% that the house prices indices suggest.
Why Irish property prices could start falling faster
Surely at those prices, there are some bargains to be had?
Well, it's certainly a lot cheaper to buy than it was. But we'd be wary of calling the bottom on this market yet.
That's because changes to mortgage laws may push prices down even further. At the moment, just as in the UK, you remain liable for your mortgage debt even if your house is repossessed. In other words, if the bank sells it, and it doesn't raise enough to pay off the debt, you are still on the hook for the balance.
A proposed new law would make it easier for householders to get out of any additional debts. The aim is to encourage banks to write down debts of their borrowers. But it may also result in more debtors deciding to simply walk away.
This would boost the supply of housing, and therefore hit prices. Indeed, a large part of the house price collapse in the US was due to this phenomenon. (It became known as 'jingle mail', where people just left their houses and posted the keys to the lenders).
If you're looking for a holiday home in Ireland, by all means take a look; it's much cheaper than it was. But if you're looking for an investment, we'd say it's still just a bit too risky.
A much better better bet for anyone looking to invest in overseas property, would be the US market. There are clear signs there that a sustainable recovery has begun. Sure, that might mean there's less potential upside.
But as Robert Schiller of Yale University - one of the few economists who predicted the crash notes, property values take more time to correct than those of more liquid assets like stocks. This means it is better to be slightly late to the party, than too early.
Avoid Irish stocks there's better value elsewhere
With a further slide in property prices hanging over the economy, we'd also be wary of betting too heavily on an Irish recovery. Investors have clearly already embraced the idea, with the Irish stock market up around 20% since the start of 2012.
Irish stocks are still not expensive based on long-term measures. But with sentiment improving on the country, there's the potential for short-term disappointment. If you're going to invest in a peripheral eurozone country, we think you'd have more opportunity for gains by buying one that remains in the crisis spotlight. For example, you can track the Italian market via the iShares FTSE/MIB ETF (LSE: IMIB).
This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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