A report from AIB has said that current prices rises in the housing market cannot be sustained.
Chief economist John Beggs said average house prices were expected to rise by at least 20% between 2005 and 2007, but the rise in wages would be less than half of this.
He added, however, that AIB did not foresee a sharp fall on house prices, but 'a protracted period of stability' could follow after 2007. Mr Beggs forecast that average prices would rise by 12% this year, with even higher increases in many areas, while 85,000 new homes would be completed. The economist said price growth would slow to 7% by the end of next year.
He said it was possible that economists had underestimated the short-term level of demand, but we were moving further away from a 'soft landing', and risks to the sector required careful monitoring.
Mr Beggs said there was a healthy underlying demand for housing, but some of the factors supporting this were about to change. He cited higher interest rates, a flow of funds to overseas property markets and a slowdown in employment growth.
On the wider economy, Mr Beggs predicted that the economy would grow by 5.3% in GDP terms and 5% in GNP terms this year, accelerating to 5.7% and 5.5% respectively in 2007. He said this would be mainly driven by consumer spending, boosted by the release of SSIA money.
The economist also forecast another undershoot in the Exchequer deficit target of €2.9 billion, due to exceptionally strong tax receipts. He said the Exchequer figure could well be in balance by the end of 2006.
