Runaway house prices pose a danger to the Irish economic recovery, the Central Bank has warned. The banking watchdog has voiced its concern over steep price rises, which are running at boom-era levels nationally and even faster in Dublin.

It also cautioned against the mindset that house prices will keep rising, which could fuel property speculation and potentially destabilise the market all over again. The comments are the clearest evidence yet that the pace of house price increases in recent months has set off alarm bells at the Central Bank, according to a report by the Irish Independent.

Nationally, the 16.3% rise in house prices is close to the level seen at the peak of the property boom - and just before the economy crashed - the Central Bank said. In some parts of Dublin prices are going up at a pace not seen since the 1990s, faster even than the official data indicates, officials believe. The Central Bank outlined what it believed to be a major threat to financial stability posed by the housing market.

It is concerned about a frenzy of fresh speculation which could inflate prices beyond what is normal, as happened in the economic boom and bust of recent years. The banking regulator warned mortgage lenders not to move too quickly to factor the latest price rises into their own valuations. It pointed out that the number of houses being sold was so low it may not be generating meaningful data.