It's time for a detox in the property market, says Marc Coleman.

INVENTED to describe coming off drugs, the term 'cold turkey' had a different original meaning. After all, the sheer awfulness of January begs description: annoying new-year resolutions, ghastly cleaning up and the depressing return to normality. Why should the property market be different?

Although we don't know for certain, the latest Ulster Bank construction industry survey suggests it isn't. Its indicator of 'housing activity', building and purchasing, among other things, fell for the second month in a row in December and Ulster Bank chief economist Pat McArdle reckons that house prices suffered their first fall in five years. The next permanent tsb/ESRI house price index is due out soon and will cover the month of December.

It will hopefully confirm that the property market is beginning a badly needed detox session.

The fall fall, in December 2001, came in the wake of budgetary measures - soon reversed - that made investors pay more stamp duty. In that case a fundamental background factor, the tax regime, changed and market equilibrium prices changed accordingly (and changed back when the measure was reversed).

The same thing happened about a year and a half ago, except this time the fundamental factor was monetary, rather than fiscal. Late in 2005 the banks decided to release more credit into the housing market.

The usual ridigities in planning permission and housing construction meant that capacity didn't expand at the same rate and, since money was invented, the result of throwing too much of the stuff at too few goods has always been higher prices.

This all adds up to the fact that much of the increase in prices in the last two years was justified by market fundamentals (this is not the same as saying they were morally justified, but that's another day's debate).

But there is a problem with monetary fundamentals; they change more rapidly than fiscal ones and induce less predictable changes in equilibrium prices. In laymans' terms, when the cause of rising prices is more credit, rather than a different tax treatment, it becomes much harder to guess where the new price should settle. This leads to what economists call irrational exuberance, or what punters call 'losing the run of yourself'.

Assuming that the fundamentals remain stable and with a little bit of luck, the first quarter of this year should see that exuberance unwind and prices correct themselves in an orderly fashion.

Of course, I have only mentioned the government's tax policy and mortgage lending policy of banks as fundamentals driving the market. There are other fundamentals that might alter with profound consequences for supply and, by extension, prices.

An AIB survey finds that, despite planning permissions growing strongly last year, growth was far from sufficient to cater for housing demand in the Dublin area. In the cockpit of the next general election, planning decisions in the capital will also dictate the future of the housing market, but more about that next week.

Incidentally, it is entirely unfair to accuse those of us who argue this point of 'talking down the market'. Far from talking down the market, the more cautious among us are talking some sense into the damn thing. Getting someone to climb off a five foot wall before it becomes a 50 foot cliff is an act of civic responsibility, not economic sabotage.

If you do happen find anyone telling you that the market is headed for stunning double digit growth this year, tie them to a lamppost and flog some sense into them.

Failing that, ring the nearest lunatic asylum.

Marc Coleman is Economics Editor of The Irish Times