House prices increased by 8.6 per cent during 2004, and growth of between 5 and 7 per cent is likely this year, according to the latest Permanent TSB/ESRI index.
While there are signs house price growth is moderating strongly, Permanent TSB said demand would remain high, particularly in Dublin and surrounding counties.
The bank also said the purchase of secondary homes would bolster demand.
The 8.6 per cent growth for 2004 compares with annual growth of 13.3 per cent in 2002 and 13.8 per cent in 2003.
Nationally, house prices grew by 0.2 per cent in December, bringing growth for the last three months of 2004 to 0.8 per cent.
The average national house price in December was €254,215. The equivalent price in December 2003 was €234,066.
The compilers of the index said beneath the surface there were significant variations in the rate of price growth.
"The counties with the fastest rate of price growth are Co Cork and Co Donegal (16 per cent growth in each case), while at the other end of the scale average prices in Roscommon and Longford rose by just 7 per cent and 5 per cent respectively."
House prices for first-time buyers and second-time buyers increased by 7.9 per cent and 9 per cent respectively in 2004.
The annual growth rate for first-time buyers and second-time buyers in 2003 was 14.7 per cent and 13.4 per cent respectively.
Mr Niall O'Grady, head of marketing at the bank, said 5 to 7 per cent growth was possible in 2005. "This might seem humble, but it is actually a very strong growth rate."
He said changes in the Budget regarding stamp duty had yet to feed through to the figures.
Mr David Duffy, an economist with the ESRI, said the interest rate environment was relatively benign, and population statistics indicated that growth in the market would continue.
He said forecasters tended to underestimate patterns of migration when working out housing demand. He added that careful attention should also be paid to the number of individuals buying second homes when working out demand.
Mr Duffy said if there was an interest rate increase from the European Central Bank it would probably come later in the year.
