The number of households in negative equity has dipped under 100,000 for the first time in eight years, according to the Economic and Social Research Institute (ESRI).
In its latest economic commentary, the think tank says three years of sustained property price growth had significantly reduced the number of people living in homes worth less than the loans used to buy them.
Based on official property prices and mortgage data from the Department of the Environment, it put the number of negative equity households at 99,950 as of the end of last year – down from a recessionary peak of 314,000 in 2012.
"Households in negative equity consume less because they feel less wealthy and are less likely to move house because they feel constrained - both of which can have a negative impact on the wider economy," the ESRI's David Duffy said.
The institute estimates that if property prices continue to rise at the current rate of 6 per cent per annum, all households would be free of negative equity by the end of 2019.
In its report, the ESRI maintained a positive outlook for the Irish economy, forecasting gross domestic product would grow by 4.8 per cent this year and by 4.1 per cent in 2017.
However, it downgraded its forecast for export growth as a result of the risk posed to world trade from a slowdown in China. It described China's economic position as "particularly worrisome", with spiralling debt levels making the possibility of a hard landing more likely.
The downside risk to Ireland’s export trade was compounded by “growing ambiguity” about the outcome of the UK’s upcoming referendum on EU membership.
"If Brexit were to occur, this would certainly worsen the outlook for Ireland's trade in 2017," it said, while noting there was also an upside risk as it may lead to an increased flow of foreign direct investment (FDI) as Ireland captures some of the relocating FDI with the State's low corporate tax rate.
It said domestic uncertainty owing to the general election result was likely to be minimal, at least in the short term.
