Bank of Ireland today dismissed concerns of spiralling mortgage debt by saying the increase in house prices over the last 10 years has generated "considerable" asset-wealth.
In its quarterly analysis of the Irish property market the bank also forecasts moderating growth in house prices and predicts the "end of an era" as a surge in supply dampens price growth to single digits rather than the annual double digit inflation of recent years.
According to the bank's group chief economist, Dr Dan McLoughlin, house prices will increase by 6 per cent this year compared to 11.4 per cent last year.
One of the key reasons for the slowdown is the rapid pace of apartment construction - a sector that now accounts for a quarter of all residential sales - where rents for the second quarter were some 5 per cent below the corresponding period for 2003.
Dr McLoughlin claims this depression in rental growth has resulted in a slackening demand for apartments, with sales price increases slumping to 2.1 per cent in the first quarter of this year compared to 8.9 per cent in the first quarter to December in 2003 and 26.5 per cent at the end of 2002.
Dublin is leading the slowdown with prices growing by 9.6 per cent in the 12 months to June compared to an increase of 13.4 per cent outside the capital.
Despite the sliding rate of house price growth, Dr McLoughlin argues this will be another record-breaking year for the Irish housing market.
He said: "It is clear that 2004 will set yet more records in terms of activity in the property market, in terms of completions, the number of mortgages granted or the total amount borrowed by the Irish public. At the same time we are witnessing a watershed in house prices in that the era of double-digit percentage price gains may be over, as supply finally catches up with demand".
Dr McLoughlin anticipates 75,000 houses will be constructed this year. That means 200 new builds each day, driving the rate of completions up 5 per cent from last year's record figure.
Earlier this year the Central Bank warned the current credit boom cannot continue at the same rate, pointing out that the level of personal debt relative to average disposable income has more than doubled over the past ten years.
However, the Bank of Ireland report claims concerns over housing debt are misguided.
Mr Joe Larkin, director, personal lending, Bank of Ireland, said: "Concern about debt alone is . . . misguided, as householders in Ireland have built up considerable assets on the other side of the balance sheet, thanks to the rise in property values.
"For example, the value of housing stock in Ireland in 2003 exceeded €380 billion on our estimate against outstanding debt of under €60 billion giving net housing wealth of €320 billion or over four times disposable income."
Mr Larkin added: "As the Central Bank has explained, over the last ten years debt levels in Ireland have merely caught up to the euro zone norm."
Bank of Ireland expects the European Central Bank to increase interest rates by a quarter of a per cent later this year and predicts rates will rise by a further two points over the next two years.