House prices could drop 10% in 2008 - economist

Average house prices could fall by anything from 5 per cent to 10 per cent in 2008 according to Friends First Chief Economist, Jim Power.

Confidence in the market has been "shattered" and he does not envisage any significant improvement next year, Mr Power said at the launch of his latest economic outlook.

"On the other hand, the slowdown in the market is very desirable and it is good to see a bit more sanity prevail", he added.

Mr Power said next week's budget would be the "most challenging in over a decade" and he called on the Minister for Finance, Brian Cowen, to manage the resources at his disposal in a more prudent manner.

He said the Minister should cut stamp duty from 9 per cent to 6 per cent to help boost housing turnover in 2008.

Mr Power also said wage restraint is important in the current economic climate especially with regard to the re-negotiating of the national wage agreement in early 2008.

However, he said preaching restraint after the Government accepted the "out of touch" recommendations from the Review Body on Higher Remuneration will prove at a minimum, difficult.

"The effect of these increases may signal bad news down the road, for the Irish economy," Mr Power added.