There is no house price bubble, according to Mr Jim O'Leary, chief economist at Davy Stockbrokers.

In the latest report on the housing market, Solid Foundations, Mr O'Leary said the market has been driven by fundamental factors and these would need to reverse for the market to collapse.

However, it said it is possible that some types of housing will see price falls. Those most at risk, according to Mr O'Leary, are three bedroom semi-detached homes in the outer Dublin suburbs.

Mr O'Leary has also forecast that the rate of growth of house prices will slow down to between 5 per cent and 10 per cent. This in itself will reduce the risk of any bubble.

The study also found that contrary to common belief there is no growing problem of affordability. Mortgage sizes have been growing but the additional repayments in a falling interest rate environment have been more than offset by general wages growth.

According to Mr O'Leary, most of the dramatic rise in prices of recent years can be justified by big increases in household disposable incomes and the advent of a new regime of very low and relatively stable interest rates.

At the same time changes in demography and living standards have boosted house prices.

This means that either interest rates have to rise very sharply or the economy has to slow down quickly to impact on house prices. "It is improbable that either of these conditions will be met in the next few years," Mr O'Leary said.

At the same time the imbalance between supply and demand is likely to close as new house starts catch up with demand. As a result, there could be a slight fall in prices in some areas where there are very large amounts of supply such as the outer Dublin suburbs, Mr O'Leary said.

The report also found that there is no evidence of a general affordability problem in the housing market. The key is discretionary income which is household disposable income after mortgage payments. This has been rising by about 4 per cent a year since 1993 and is likely to continue rising as wage rises and tax cuts kick in.

The report also found that the gap between Dublin and the rest of the State has widened considerably. By June 1999 Dublin prices were 130 per cent of the national average compared with a premium of less than 6 per cent in early 1993.

At the same time existing house prices have risen faster than new house pricees, especially outside Dublin.