The Central Bank has said that Irish property prices have overcorrected by between 12% to 26% compared with the fundamental value of properties.
The bank suggests that a lack of consumer confidence and expectations about further price falls is holding back purchases.
It also said that a lack of mortgage finance from banks is restricting market activity and price levels.
The bank warns that any immediate revival of the sector still appears to be some way off.
The bank’s researchers used four separate models to assess property prices for the research.
One model found that prices were 26% below what economic fundamentals in the economy would warrant. Two other models found that prices were 16-18% undervalued.
A fourth model suggested that they were under valued by 12%.
The Central Bank said that as it enters its fifth year, the severe downturn in the residential property market has already become one of the OECD's largest and most protracted.
The CSO's residential property price index showed that the decline in value since the peak of the market in 2007 was over 47%.
The research pointed out that Ireland's housing prices have fallen for 16 quarters in row, but this compares to 82 quarters in Japan and 41 quarters in Switzerland.
It also noted that just 11,000 new mortgages were issued last year, down from 110,800 in 2006. It said that almost 10,500 housing units were built last year, down from 14,600 in 2010. At the height of the housing boom about 93,000 houses were built in 2006.
The Central Bank pointed out that a positive trend in the housing market is the fact that affordability has improved in recent years, but it adds that the imposition of tighter credit conditions by the banks could diminish much of this benefit.
