National Irish Bank's quarterly report on the economy says house prices have almost 'bottomed out' and that sales activity will return to normal in the second half of the year.
NIB's economist Ronnie O'Toole, author of the bank's report, says the housing market in bigger cities will recover quicker than rural parts of the country.
'While supply continues to retrench, there are signs that housing demand might finally be stabilising,' Dr O'Toole said.
'House prices are bottoming out some 15% off their 2006 peak levels and a more normal level of activity will return to the market in the second half of the year,' he added.
The report also says that the decline in the housing industry has continued on from the sharp fall of last year, with mortgage lending, house prices, housing registrations and housing completions all set for more sharp falls in 2008.
There was rental inflation of 9.5% in 2007, though NIB's report says that this slowed considerably in the second half of the year due to an increasing availability of rental property.
The report says that the problems in housing will contribute to an overall weakening of the economy. NIB predicts GDP growth will slow to 2.9% in 2008 from 5.3% last year.
However, the bank says that there has been an over-reaction to issues regarding the country's competitiveness. It insists the problem has been exaggerated and points to strong growth in exports and the continued inflow of foreign investment, leading to higher-quality jobs, as positives for the economy.
In relation to employment, the report says there will be plenty of jobs lost and created in the coming months, but stresses that males in rural areas are particularly vulnerable as a result of the decline in construction, agriculture and manufacturing.