House prices will rise by only 3 per cent next year as the effects of higher interest rates kick in, according to an analysis of the market published this morning.
Bank of Ireland's Irish Property Reviewsays 2006 is set to be a another record year for house prices, completions and mortgages but that 2007 is likely to see "sluggish price inflation".
House completions could reach a record 100,000 by the end of this year, the report says, which would represent around 24 completions per 1,000 people in the State.
The bank believes the estimates for house completions of 85,000 to 90,000 is now too low. Completions in the first half of the year were 24 per cent up on the same period of 2005.
By the end of the year the average price of a hosue nationally is expected to reach €400,000 by the end of the year. In Dublin the average price of a house is expected to reach €540,000 by year end.
On prices, the analysis notes that house prices have risen by more than 10 per cent a year since the summer of 2002. By the end of the year the bank predicts a 14 per cent annual increase but forecasts significantly slower growth in 2007 of only 3 per cent.
In Dublin, house price inflation has been even stronger at over 17%. Today the average price of an Dublin home stands at €516,000, the bank says.
Group chief economist Dan McLaughlin, said: "Despite the growth in completions, it is true that the Irish housing 'stock per head' is still below the EU average, implying a catch-up period might be expected, but few if any envisaged annual house completions of this magnitude, even given the recent surge in immigration and related growth in total population.
"Clearly, there are no appreciable constraints on Irish housing supply, and although many may quibble with the planning process, and whether the distribution of new housing is optimal from a social perspective, the aggregate supply response hardly suggests market failure."