IRISH HOUSE prices are set to fall by 6 per cent this year and are unlikely to recover in 2009, according to a leading international agency.

Jean-Michel Six, Paris-based economist with multi-national ratings agency, Standard & Poors, predicts in a report published yesterday that the current downturn in the Republic's housing market will continue well into 2009.

"We expect house prices to decline by about 6 per cent this year and stay approximately flat in 2009." He warns that the drawn out correction in the housing market will act as a drag on the building industry, which accounts for about one-quarter of the State's economy.

"So a sharp and rapid slowdown in the sector will have major knock-on effects. We forecast that gross domestic product growth will average 2.3 per cent in 2008 and 2.9 per cent next year.

"This is less than one-half the 7.4 per cent average annual growth rate enjoyed by the celtic tiger in the 13 years spanning 1994-2006."

He also believes that around 50,000 new homes will be built here this year and next year, well behind the record 88,000 reached in 2006.

Mr Six says that the Republic's average household debt stood at 175 per cent of disposable incomes last year, compared with 164 per cent in 2006. He points out that this is one of the highest in the 11 EU countries that have the euro as their currency.

However, he agrees that houses are becoming more affordable, which "will support market activity in the longer term".

Recent figures show that mortgage repayments came to 22.6 per cent of net incomes on average in December 2007, compared with 26.4 per cent a year earlier.

Mr Six says that further increases in mortgage interest relief this year, along with a boost to tax credits and bands, should improve this even further this year.