Irish homebuyers waiting for a collapse in the market before investing are likely to be disappointed, according to Ulster Bank chief economist Mr Pat McArdle.
In a study, he admits the market's continued strong growth in 2003 wrongfooted many economists, including himself, and argues that the experience in 2004 to date indicates a continuation of recent trends.
Mr McArdle sees affordability as the key indicator to gauging the state of the housing market. "Despite escalating house prices in recent years, affordability as measured by the Ulster Bank Affordability Index, has actually improved with the percentage of earning eaten up by mortgage repayments declining," he says.
Lower tax and interest rates have contributed to this trend, allowing borrowers to afford substantially higher mortgages.
Although housing completions are at record levels, Ireland is not yet oversupplied in housing terms, Mr McArdle says. "We now have a situation where we have about 1.5 million housing units for a population of four million people - a ratio of 2.7 million households. The current figure for the UK is 2.4 million."
He acknowledges that the current "unparalleled" level of housebuilding cannot continue. "It is likely that all possible demand will be satisfied in the not-too-distant future," he says. "Once that happens, price inflation will tail off sharply."
But writing in the forthcoming issue of Accountancy Plus, the journal of the Institute of Certified Public Accountants, he says Irish house prices are likely to remain high by European standards.
"The level of house prices in Ireland is second or third highest in the EU but this matches our GDP per head and is not likely to change," he says.
He sees little danger from the two potential negatives for the housing market: unemployment and rising interest rates. "Fortunately, unemployment is at very low levels and is likely to stay there. While we do envisage interest rates easing upwards somewhat, this will still be to levels that are historically low by Irish standards," he says.
He dismisses a return to pre-euro interest rate levels for Irish borrowers as "pretty well inconceivable". While he says the timing of a slowdown in price growth to more realistic levels is impossible to forecast, Mr McArdle expects it to be orderly. The longer the market remains excessively strong, the greater the chances of an eventual bust, he says, something he characterises as a "doomsday scenario".
"As of now, however, the market is in good shape. The challenge is to achieve an early and smooth slowdown. This is in everyone's interest - builders, lenders and homeowners alike."
He notes that the buy-to-let market leads the way on slowing prices, especially in the apartment market where price growth has fallen from an annual rate of more than 25 per cent in early 2003 to single digits on the back of falling real rent levels.
