The rate of increase in house prices slowed to 21 per cent in 1999 compared to rises of 30 per cent and 28 per cent in 1997 and 1998, according to the latest house price index from First Active.

The slowdown last year was most notable in the second half of the year. The third quarter saw the level of increase declining to 0.7 per cent while the final quarter saw a 4.3 per cent increase. Prices had increased by 8.4 per cent and 7.5 per cent in the first and second quarters.

Preliminary data for January of this year indicates that house prices increased by 3.4 per cent compared to the final quarter of 1999.

Mr Richard Hoare, operations director of First Active, said the latest figures were the first sign of a slowdown in annual house prices for some time.

He predicted the market would continue to remain buoyant in 2000, with overall affordability improving due to continued wage rises, increased employment participation and reductions in taxes.

Interest rate rises, he said, would not have any substantial effect on housing demand.

Dublin prices, including surrounding counties, increased by 38 per cent in 1999 compared to 10 per cent for the rest of the State while apartment prices rose by 34 per cent. The price of new three-bedroom houses increased by 30 per cent while prices of new four-bedroom houses rose by more than 16 per cent.

The large increase in prices in the Dublin region is being driven by rising prices in satellite towns in Meath, Wicklow and surrounding counties.

Prices of existing three-bedroom houses rose by almost 13 per cent and existing four-bedroom houses rose by around 14 per cent. Residential investment property prices rose by 36 per cent in 1999, with investors increasingly looking to apartment developments for long-term investments.

The figures show a similar trend to Irish Permanent's house price index, which showed a 17.9 per cent year-on-year increase in the Republic in 1999 compared to a rise of almost 30 per cent in 1998.

Mr Hoare maintained that, given the current economic growth forecasts, the housing market would experience a soft landing with a gradual levelling off of house prices as supply converges towards demand.

Department of Environment figures on house prices, which are to be published early next month, are expected to reflect this gradual slowdown.