RUNAWAY house prices pose a danger to our 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.

Nationally, the 16.3pc rise in house prices is close to the level seen at the peak of the property boom - and just before the economy crash - 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.

The "rapid pace of house price increases" could trigger "expectations of further increases and could lead to a misalignment of house prices", the banking regulator said.

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.

A scarcity of houses means there were actually fewer homes for sale this year than at both the peak of the bubble, and the pit of the crash.

There were 30,000 houses for sale nationally in September, the lowest figure since March 2007 - and less than halfthe number of homes for sale in 2009, according to research by property website Daft.

In Dublin, the fewer than 4,000 homes for sale at the end of October was 60pc lower than at the same time last year, it said.

Figures published by the Central Bank yesterday also show that 97pc of property professionals surveyed earlier this year expected house prices to rise in 2015, and none anticipated a drop in prices.

But the survey of estate agents, property surveyors, and property-focused economists and academics was undertaken before the Central Bank revealed in October that it planned to introduce limits on mortgage lending by the banks next year. Ironically, the bank's own move to cap mortgages has been blamed for a surge in prices in October.

And there is evidence the rises in house prices are feeding expectations of more to come.

But, unlike the loose lending that fuelled the boom, the increases are being driven by factors including the lack of housing supply, the Central Bank said.

It was commenting in its latest Macro Financial Review, a twice-yearly round up of the overall state of the economy.

As prices rise the Central Bank yesterday warned lenders not to try to flatter their battered balance sheets based on the latest house price rises.

Banks value their own books of mortgages based in part on the value of the houses underpinning them.

Privately, officials said the historically low levels of transactions can give rise to volatile readings - and therefore house prices need to treated with caution.

Dublin is the busiest market nationally and accounts for about one in three sales, but just 2.3pc of properties changed hands over the past year, which the Central Bank said was very low by "normal standards".

There were 4,500 mortgages drawn down in the three months to the end of September - making up about half of all house purchases, it said.

However, the dominance of cash in the property market means the Central Bank's own plan to keep a lid on the mortgage market with caps on the amount banks can lend to customers will likely have a limited impact.

The planned lending caps were originally intended to limit most home loans to 80pc of the price of a property, and three-and-a-half times the buyers' income.

But the finalised lending rules will be unveiled in January after a review of 157 submissions made during a public consultation process, officials said yesterday. The lending caps are aimed at protecting bank and bank customers' balance sheets, and are not targeted directly at house prices.

Irish Independent