Defying gravity. It would seem that nothing can stop the upward spiral in house prices. Growth rates eased sharply in late 2001 and early 2002 and it seemed that the market was cooling but, in the past few months, it has come storming back.

House prices are now rising at an annual rate of 15 per cent plus, according to the Permanent TSB/ESRI index.

Figures published yesterday by Sherry FitzGerald auctioneers, meanwhile, confirmed that prices are continuing to rise strongly, estimating that second-hand house prices in Dublin have risen by around 20 per cent in the year to March.

Forecasts for the market now fall between two extremes. At one end are the "stablisers", who feel that prices can hold current levels, or even continue to edge upwards, while at the other end are the "collapsers", who predict a substantial fall. Just who should confused homeowners and property investors believe?

The obvious conclusion looking at the current market is that the pace of house price growth is simply not sustainable. Encouraged by low interest rates and the restoration of tax breaks, investors have stormed back into the market over the past year and pushed up prices.

At a time when economic growth is slowing rapidly, disposable incomes are under pressure and housing supply in many areas significantly increased, price increases at current levels can surely not last much longer.

The latest sharp increase appears to have been driven by the ready availability of mortgage credit and a belief - particularly among investors - that housing remains a good investment.

The latest figures from the Central Bank show an extraordinary jump of almost 24 per cent in mortgage lending in February, compared to the same month last year.

But cheap and available money will not, on its own, support price growth in the long term.

A recent report from Goodbody stockbrokers warned that, given the deterioration in underlying economic conditions, "the Irish housing market is currently in the early stages of an asset bubble".

Goodbody also warns that investors' expectations are being affected by falling rent levels and by a delay in finding tenants for investment properties.

Given the current economic uncertainties and the dire international climate, it therefore appears most unlikely that double-digit house price growth can continue much longer.

It may take some time to slow, but slow significantly it surely must.

The more difficult question is whether this slowing will presage a sharp fall. Here the bulls and bears sharply diverge.

Those expecting a continued rise in house prices point to the underlying demographic support provided by the continued growth in the working population and the underlying resilience of the economy.

The bears highlight the sharp economic slowdown and the extraordinary rise in prices over recent years .

A recent European Central Bank (ECB) review of all the different property markets in the European Union states over the past 20 years might give the optimists pause for thought.

Taking its definition of a "boom" or "bust" as a 10 per cent annual rise or fall in property prices, the ECB finds 18 booms and 10 busts over the past two decades.

The Nordic countries and the UK provided many of them.

"Not every boom was followed by a bust, or vice versa," the ECB reports. However, it said booms "have typically been followed by prolonged periods of very low growth, or even of decline in house prices."

So even if the price of the boom is not inevitably a bust, it tends to get paid for through a lengthy period of stagnant or falling prices.

Is the Irish market at or near this peak?

There is a strong argument that it is. The economy, in the Celtic Tiger years, was "catching up" in wealth terms with the richer EU states.

This large increase in wealth and incomes, combined with demographic pressures, pushed the housing market upwards, with prices now more than double their mid-1990s levels on average in real terms.

In general economic terms this "catch up" is now complete.

The same is likely to be true for house prices. Bolstering this argument is the fact that the the huge under-supply that affected the market and pushed up prices for much of the boom period is now coming to an end.

Supply has increased sharply in recent years ,with some 57,000 new completions last year and a forecast 60,000 this year.

With the annual demand estimated between 40,000 and 50,000 in the medium term, shortage of supply is no longer likely to be a factor generally pushing prices higher.

Affordability is now also an issue. House prices have, historically, equalled around 3 times employee disposable income. The average has now risen to around six times income, according to Bank of Ireland research. A house in Dublin would have cost around five times the average industrial wage between 1980 and 1995. It would now cost 10 times the average industrial wage. The key issue this raises for many homebuyers, as Goodbody pointed out in its recent report, is affording the deposit - many have to rely on parents for the loan of €25,000 or so. In turn, many of the parents are remortgaging their houses to help out.

Low interest rates mean making the repayments remains possible, however.

Bank of Ireland research shows a rise in mortgage payments from 28 per cent of manufacturing wages on average over the past 25 years to 32.4 per cent last year - a rise, but not too sizeable a one.

And for as long as house prices continue to rise, homeowners' wealth will rise with the price of their asset.

However two factors will be worrying the Central Bank, which has sounded a clear warning note on the housing market.

One is the risk that - whatever the average mortgage level - some borrowers may be over-extending themselves, leading to risks for specific groups of new borrowers. The other is the explosion in recent years in the overall size of mortgage debt, which now totals more than twice disposable income.

Looking ahead, there seems no reason why house prices should exceed income growth in the years ahead. But what of the risks of a sharp fall?

Low interest rates will remain a support and "an employment shock" - a sharp rise in unemployment due to an economic downturn - is the main vulnerability of the market, according to Mr David Duffy, an economist with the ESRI who works in this area.

Most economist agree that this is the main danger over the next year or so, with the average forecast being that price growth will slow sharply, but that prices in general will not actually decline sharply.

The market may also become more fragmented. New house prices are likely to be held down by strong supply in this area, while at the very top end the death of the Celtic Tiger will affect sales.

Mid-market second-hand homes in good locations, however, may hold their value.

The same trends may show themselves in the investment market, with a premium only being paid for rentable properties in good locations and other parts of the market suffering.

The days of double-digit annual house price rises will soon come to an end.

Beyond that, the market may be vulnerable if the economy turns down sharply and unemployment increases.

Otherwise, expect a quick return to much more modest house price increases, with price falls possible in areas where the bubble has inflated the most significantly.