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Ireland's property market could be undervalued, a new report said today, with the steady fall in house prices caused by oversupply in the market.

However, the report from Standard and Poor's did not rule out further declines in prices.

In a report on the European housing market published today, S&P said Ireland's ongoing market correct "seems overdone", and estimated priceds were undervalued by about 12 per cent.

The agency said Irish house prices, which recorded an 18.5 per cent decline in the 12 months ending December 2009, were showing a marked difference to other European markets, which have displayed signs of pulling out of the recent price correction.

"Fundamentals driving the Irish market have nevertheless improved dramatically. The market appears undervalued today compared with long-term historical averages," the report said.

Mortgage lending continued to fall, however, despite falling interest rates contributing to a rise in affordability for buyers.

House completions are also falling, with 26,420 completed last year compared with 51,724 a year earlier, according to Government figures. In the first quarter of the year, completions totalled 3,759 - almost half of the figure recorded a year earlier.

However, rents continue to fall, slipping 13 per cent in the 12 months to March, following a 30 per cent decrease in 2009.

"We think the economy will likely remain unsupportive for another year at least," S&P said.

The report said consumer caution stemming from unemployment and fiscal tightening by the Government would contribute to further house price falls, with predictions of a further 10 per drop over the year before it finally hits a trough in 2011.

Meanwhile, the price slump has slowed in many European countries, including France, Italy, Spain, and the Netherlands. But the report warned the correction may not be over, and said there was the possibility of a second dip in several markets, either later this year or in early 2011.