House prices inflation in Ireland this year is the seventh highest of 20 countries covered in a new analysis by the Economist magazine. It warned last year that Irish house prices could be set for a hefty fall and its latest survey again identifies the market here as being one of a number internationally to be vulnerable.

Prices in the second quarter of 2004 were 11.1 per cent higher than in the same period last year, it says, slower than the 13.8 per cent rate of increase at the same time in 2003, but still close to the top of the league.

Of the 20 countries surveyed, 11 had double-digit price increases for the year. Hong Kong, with a 28.7 per cent rate of increase is at the top, followed by South Africa at 25.5 per cent.

The Economist argued last year than Irish house prices were vulnerable to a sharp fall. Its latest issue renews its warnings of a property bubble. Ireland is one of the countries where prices are at an all-time higher relative to earnings, it says. Property is overvalued in two-thirds (by economic weight) of the countries tracked, it says, and past experience suggests that prices could fall sharply from their current highs. It warns that falling prices can have a significant impact on economic activity, citing the experience of the Netherlands. The rate of Dutch house price inflation slowed from 20 per cent in 2000 to virtually zero in 2003, it says, contributing to a fall-off in consumer spending.

The Economist survey is the latest in a line of warnings on the Irish property market. A number of domestic analysts have sounded warnings about the dangers facing the danger, as has the IMF.

However work by Central Bank economists has suggested that so far consumers here can continue to afford mortgage repayment levels and that debt levels here are not yet excessive. However, the bank itself has warned that the market could be vulnerable if the rate of price increase does not slow in the near future.