Property prices are forecast to grow by 10 per cent this year, after average national price growth of 9.3 per cent in 2005, according to the latest edition of the Permanent TSB/Economic and Social Research Institute (ESRI) house price index.
The rate of growth in the housing market last year outstripped the growth rate of 5-7 per cent predicted by the Permanent TSB/ESRI survey last year.
After a sluggish start, with an average increase of just 2.5 per cent over the first six months, growth accelerated dramatically in the second half of the year, with prices rising by 6.7 per cent.
Despite the record number of house completions, the cost of houses for first-time buyers, up 12.7 per cent, grew significantly faster than those for second-time buyers, which grew by 8.3 per cent, according to the index.
Permanent TSB attributed this to the raising of the stamp duty thresholds for first-time buyers of existing properties at the beginning of the year. This made second-hand properties, which have higher average prices than new properties, more attractive to first-time buyers.
Demand from investors for new properties and the concentration of completions in urban and commuter areas also helped push up prices for those trying to get on the housing ladder.
Although Department of the Environment figures show there were 81,000 completions in 2005, it is estimated that about 15,000 of these were bought as second homes, thus reducing the supply available to first-time buyers.
Niall O'Grady, head of marketing at Permanent TSB, said the introduction of 100 per cent finance by several lenders in the middle of the year may have pulled forward some first-time buyers into the market. However there had been no sharp increase in the proportion of its lending advanced to first-time buyers.
The average price paid for property by a first-time buyer is now almost €250,000. The average price for a house nationally in December 2005 was almost €277,850, up almost €25,000 on the average in December 2004.
The average prices paid in Dublin and outside Dublin in December 2005 were €368,576 and €240,201 respectively.
House prices in Kerry grew fastest in 2005, with average prices up 15 per cent. This compares to an average rise of 10 per cent for houses in Dublin. The lowest rate of increase was in Leitrim, where prices rose by an average of just 2 per cent.
Mr O'Grady said the rate of growth in some counties had been striking. Cavan, Kilkenny, Monaghan and Louth all had growth of 14 per cent in 2005.
Strong demand is likely to drive price growth again in 2006, Mr O'Grady said. Further interest rate increases may slightly dampen the impact of this demand, especially in the second half of the year, but the market would remain buoyant, he added.
ESRI economist David Duffy said growth in house prices would not be as strong as it was during the Celtic Tiger period. "The rates of growth we have now are still very strong, but they are more sustainable."
The ESRI has revised its demand for housing units from 50,000 per annum up to 75,000 per annum, based on census data and migration figures.
A strong economy, full employment and growth in personal disposable income would all drive demand for property, Mr Duffy said.