House prices fell sharply last month as the autumn selling season failed to take off, according to data released yesterday, writes Dominic Coyle

The Permanent TSB/ESRI house price index said prices tumbled 1.3 per cent in October, the largest drop in a single month since the index began in 1996.

Prices have now fallen by 4.9 per cent since the start of the year, according to the figures.

The fall means that more than €14,000 has been wiped off the price of the average home in the last 12 months.

Dublin and the commuter counties have seen the most significant retreat in prices over the first 10 months of the year - 5.6 per cent and 5.5 per cent respectively.

However, in October, the decrease in prices in the capital (0.4 per cent) was less than the 1.2 per cent decline reported elsewhere in the State. Property in the commuter counties edged lower by just 0.1 per cent last month, according to the survey.

Niall O'Grady, head of marketing at Permanent TSB, said: "there's little surprise in the figures for October which confirm that there was little spark in the market during the traditionally strong autumn selling season. Clearly potential purchasers remain cautious and demand is sluggish."

He said people's reluctance to buy in the current market was beginning to impact on the rental sector "where rents are rising steadily in response to strong demand".

Existing homes continue to bear the brunt of the negative market sentiment with prices in October 2.3 per cent lower than September. While new homes were unable to hold their value as they had in September, their 1.3 per cent decline was less dramatic.

So far this year, the reduction in prices for existing property (7.7 per cent) has been more than twice the rate recorded for newly-built homes (3.2 per cent).

The average price for a new home nationwide last month was €292,896, ahead of the €288,654 paid for existing property.

Davy economist Rossa White said sellers, "who for so long held out for the kind of prices seen in summer of 2006, are now getting realistic... and so the asking price has dropped.

"In contrast, new home prices have been static. This is one of the key problems in the market.

"Developers have refused to drop prices yet prospective homebuyers can't or won't pay as much as in 2006, so sales have been awful."

The figures are generally considered to lag current market conditions as they relate to mortgage drawdowns. Homebuyers drawing down their mortgages in October would generally have agreed the purchase of a home up to two months earlier.

"The latest index reading is starting to reflect this reality," said Dermot O'Leary, chief economist at Goodbody. "Further monthly declines of this magnitude over the final two months of the year would leave prices down 7 per cent year-on-year in December."

That would be ahead of the projections Mr O'Leary and his team at Goodbody made earlier this month. In a report on the housing market, they forecast prices would slip by 5 per cent this year and a further 8 per cent in 2008.