HOUSE PRICES fell again in October as potential buyers shied away due to the faltering economy and a squeeze on credit.

The Permanent TSB/Economic and Social Research Institute house price index shows that the average property fell 0.8 per cent last month, taking the decline for the first 10 months of the year to 7.8 per cent.

House prices have now fallen by an average of 15 per cent since their peak in February 2007. On a year-on-year basis, average price tags are down 10.2 per cent.

The average price paid for a property in October was €265,364, according to the index, some €22,500 lower than the average price paid in December 2007. "The pace of price reductions remains steady nationally. However, the reductions in Dublin have started to accelerate," said Permanent TSB's Niall O'Grady.

Dublin house prices fell by 2.6 per cent in October, while houses outside Dublin declined by 1.4 per cent. The average price paid for a property in Dublin last month was €361,644, compared to €225,701 outside Dublin.

"The recent rate reductions from the European Central Bank [ECB] provide a very welcome boost for existing customers, but will not offset a loss of confidence in the market in the near term," Mr O'Grady added.

The ECB is forecast to cut rates by a further half-point next week, having cut its base rate from 4.25 per cent to 3.25 per cent in recent months. Lenders have not passed on the rate cuts to new customers.

Economist David McWilliams said yesterday that the Irish property market was set to face a "monumental capitulation".

At an economic briefing organised by the Dublin Port Company, Mr McWilliams said prices could yet fall by about 80 per cent, leading to soaring unemployment and mortgage default rates.

The Government should not be cutting back in an effort to balance budgets, he said, but needed to be borrowing "enormous amounts of money" to spend on infrastructure.

A report published by the Central Statistics Office yesterday showed that in 2007, the building and construction sector - of which residential housing accounted for 60 per cent - accounted for 10 per cent of gross national product last year.

Output from the construction sector is forecast to drop by 23 per cent from €38.5 billion in 2007 to €29.7 billion this year, based on figures from economic consultants DKM and the Department of the Environment, Housing and Local Government.