Another week and surprise, surprise, we have another forecast on how high property prices will rise this year, writes Una McCaffrey

The latest musings, which come courtesy of Bank of Ireland chief economist, Dr Dan McLaughlin, may bring some comfort to those currently engaged in the pain of house hunting, since they predict that house prices in 2004 are unlikely to rise as fast as they have been in the past few years.

This slowdown of sorts, which Dr McLaughlin expects to result in house-price growth of 6 per cent this year is, according to the analysis, attributable primarily to "the weight of supply". This means that, as the construction of new houses has been speeding up to satisfy demand, this demand has naturally become less intense.

A collection of factors has nonetheless combined to ensure that supply will continue to play catch-up for another while, however, with Dr McLaughlin highlighting demand factors such as employment growth, falling consumer price inflation and immigration as important factors in this regard.

In other words, the wider economic backdrop will continue to make us comfortable to buy a property this year and to pay more for it than we would have in 2003.

And, my, weren't we willing last year? Mortgage lending figures quoted by the Bank of Ireland study show that the amount of money lent by financial institutions to house buyers or homeowners in December 2003 was 25.7 per cent higher than in the same month of 2002.

Dr McLaughlin is expecting a slowing in house-price growth to dampen mortgage-lending increases this year, but has still pencilled in a climb of 11 per cent in gross lending.

With these two key forecasts under his belt, the economist moves on to the slightly more intellectual topic of affordability - one of the most important issues for anybody thinking of sticking a toe in the property market.

Affordability can be roughly defined as a homeowner's level of comfort in paying back their mortgage. It reflects, not how much a lender is prepared to advance in a loan, but rather an individual's real ability to pay the money back while maintaining a reasonable level of lifestyle.

Bank of Ireland's "affordability model" works by comparing the annual cost of a new 25-year mortgage to the average income of an Irish worker. The average worker is in this instance a male working in the average manufacturing job, with Dr McLaughlin pointing out that the length of the study model (25 years) means that it will pick up affordability changes that could reasonably be expected to affect almost every homeowner in the Republic.

Past years have seen affordability gradually decline as house prices have risen. Thus, in 1995, the average cost of servicing a new mortgage would have taken about 22 per cent of the average manufacturing wage.

By 1997, this had risen to 25 per cent, with 1998 bringing it up to 29 per cent. The measure moved up to 32 per cent in 2001 and is estimated to have risen to 33 per cent last year.

So what will 2004 bring for those nervously wondering how well they can actually afford the home they so desire?

"We can also expect a further deterioration in 2004, albeit still not to levels that would cause undue concern," is Dr McLaughlin's educated conclusion. He is predicting that affordability will deteriorate to 33.9 per cent this year.

This is based on an expectation that interest rates will rise by half a percentage point some time after the summer.

The study includes some caveats however, with Dr McLaughlin acknowledging that further declines in the dollar against the euro (as looked to be happening this week) could delay a rate increase for a time or "at the extreme" even lead to a cut.

This kind of development would obviously boost affordability and, according to the analysis, probably raise investor interest in the market at the expense of first-time buyers.

This, in turn, would lead to a short-term price boost and thus an increase in overall price growth for 2004.