Irish house prices could still be on course for a soft landing, according to a new report by economists at PricewaterhouseCoopers.
Addressing the publication of the PWC European Economic Outlook in Dublin today, Mr Mark FitzGerald, chief executive of auctioneers Sherry FitzGerald, predicted property prices will moderate to an annual growth rate of 10 per cent by 2005.
Speaking specifically on the outlook for the Dublin market, Mr FitzGerald noted that locations close to the newly launched Luas lines were attracting strong interest and predicted that Dundrum in particular would show the strongest price growth in the country for the year.
Mr FitzGerald predicted the quality of infrastructure would result in above-trend growth in the Cork market, while tightening planning restrictions in scenic rural locations would benefit price growth in the quality holiday home market in coming years.
Ms Rosemary Radcliffe, economist and adviser to PricewaterhouseCoopers, said strong income growth and lower interest rates during the Celtic Tiger era mean that the house price boom of the 1990s seems to have been underpinned to a large degree by economic fundamentals.
PWC's models also suggest that a soft landing is likely in France and Italy, with house price inflation moderating, although remaining positive over the next two years.
But the risk of a bumpy landing is significantly greater in the UK where there are already signs that house prices may be starting to fall in response to rising interest rates and to affordability constraints affecting first-time buyers in particular.
Ms Radcliffe said she expects the ECB to keep interest rates on hold for the rest of 2004, but rates could rise gradually during 2005 if growth is in line with forecasts.
"But any signs that the recovery is stalling could yet require the ECB to starting cutting rates again at some point," she added.