Analysis:Talk of "affordability barriers" has replaced exuberance in the market, writes Laura Slattery

Property prices, which once seemed to be surging to a point where a shed in Sligo was beyond the reach of the average Lotto jackpot winner, are now relenting.

The headline growth rate of 11.8 per cent in house prices last year, while ahead of expectations, conceals a number of cracks.

With the European Central Bank (ECB) increasing its key interest rate from 2 per cent to 3.5 per cent over the period and hopes of favourable Budget day reform of stamp duty holding back some buyers, the growth rate halved as the year went on.

There are concrete signs that the sluggishness of the second half of 2006 will spill over into 2007.

In December, prices paid for houses outside Dublin fell by 0.1 per cent for the second month in a row, according to the latest Permanent TSB/ESRI index. Prices in the commuter counties fell by 0.6 per cent.

Meanwhile, prices for first-time buyers fell by 0.2 per cent in December, while second-time buyers paid 0.1 per cent less in December than in November.

The pattern is getting a little jerky everywhere.

Variations in the rate of price growth between counties last year - a range of 6-29 per cent - show that the market is no longer in the collective grip of an estate agent's dream. The indiscriminate exuberance that has characterised the market over the past decade has been replaced by caution and talk of "affordability barriers".

Location has become even more important, if that is possible, in the context of the property market.

Curiously, the last mortgage market analysis by the Irish Banking Federation (IBF) showed that investor interest remained strong, despite the inconvenience of not being able to rely on instant capital appreciation any more.

Long-term yields are now the target and Permanent TSB chief executive Denis Casey said yesterday he expected to see "a strong increase" in rents over the next 12-18 months.

First-time buyers haven't been so lucky. Prices increased by almost €30,000 last year to an average of just under €280,000, which is bad news for anyone who decided to wait until they finally extract their SSIA money in order to fund a deposit. On the other hand, with growth rates close to minus figures, a 100 per cent mortgage looks like a risky financial decision.

Even with more than half of the 1.1 million SSIAs yet to mature into nice deposit-sized lump sums, Permanent TSB and the ESRI forecast that prices will rise by only 3-6 per cent in 2007.

But the market has proved its capacity to surprise and the wider than usual range of price estimates indicates that there are quite a lot of variables at play - SSIA spending, migration numbers, supply issues in the capital and a more uncertain interest rate outlook among them.