Further signs that the property market is cooling off emerged yesterday as new figures showed the annual rate of growth in house prices slowed to 10.6 per cent in January.

The latest Permanent TSB/ Economic and Social Research Institute (ESRI) house price index shows the average price paid for a house nationally in January reached €311,000, but the year-on-year growth rate was down on the 11.8 per cent annual rate recorded in December. It is expected this rate will fall further as the year progresses and the long-anticipated soft landing for the property market takes hold.

AIB yesterday lowered its forecasts for house price inflation in 2007 to a range of 2-4 per cent, down from a previous range of 3-6 per cent, as a result of the data. The bank's economic research team said it would not rule out falls in average house prices in some months this year.

The supply of new properties is also expected to fall this year after a peak in 2006. Housing starts registered with building industry warranty schemes Homebond and Premier fell 39 per cent year-on-year in February to 63,000, according to figures released yesterday. This followed an 18 per cent decline in January.

This weaker than expected level of registrations prompted AIB to lower its housing completions forecast for 2007 from 85,000 to 82,500. The bank now expects that there will be 75,000 housing completions in 2008, a drop on its earlier forecast of 78,000. Figures from the Department of the Environment show there were 93,419 housing completions last year.

The Permanent TSB/ESRI house price index shows that national house prices grew by just 0.1 per cent in January, the same rate recorded in November and December 2006.

Permanent TSB's head of marketing Niall O'Grady said the rate of price rises was now "very moderate". Over the six-month period to the end of January 2007, average house prices rose by just 2.6 per cent. "This gives a clear picture of current trends and potential annual growth in 2007," he said.

House prices in Dublin are growing at a faster rate than elsewhere - up 14.7 per cent in the capital over the 12 months to the end of January, compared to 9.7 per cent outside the capital.

The average price paid for a house in Dublin in January was just shy of €428,000, compared to almost €267,500 in other parts of the country. The average price paid in the commuter counties of Louth, Meath, Kildare and Wicklow in January was around €343,700, which was down 0.1 per cent on December's figure.

First-time buyers paid an average of €279,400 in January, while second-time buyers paid around €350,000. These price tags were up only marginally on the December averages. Although prices are stabilising, affordability pressures on buyers look set to continue as a result of further European Central Bank interest rate rises this year.