House prices nationally grew by 11.8 per cent last year, compared to 9.3 per cent in 2005, according to the latest Permanent TSB/ESRI monthly House Price Index.
But the report revealed a significant drop in the rate of growth during the second half of 2006, indicating the housing market may be finally cooling.
The rate of house price growth in the second half of the year was measured at 3.8 per cent - less than half the rate of 8 per cent recorded in the first half.
This led Permanent TSB to forecast an average rate of price growth of between 3 and 6 per cent for 2007.
The average price paid for a house in December 2006 was €310,632, up nearly €33,000 on the €277,852 recorded in December 2005.
House prices grew by 15.9 per cent in Dublin in the 12 months to December 2006 compared to 10.9 per cent in 2005.
The index found house inflation was highest on average in Dublin, Cork city and the surrounding commuter counties of Wicklow, Kildare and Meath.
The average price paid for a house in Dublin in December 2006 was €427,343, while the average price in Cork City was just under €350,000. Annual prices in the Dublin commuter counties of Louth, Meath, Kildare and Wicklow rose by 15.2 per cent compared to 10.2 per cent the previous year.
Wicklow ranks as the most expensive of the "commuter" counties at around €390,000, and Kildare and Meath follow at €340,000. Donegal ranks as the least expensive place to purchase a house, with prices averaging around €225,000.
The index also showed that the cost of houses for first-time buyers grew by 11.8 per cent while for second-time buyers they grew by 12.2 per cent.
The average price paid for a house by a first-time buyer was just under €280,000 - an increase of nearly €30,000.
Permanent TSB head of marketing Niall O'Grady said: "While the rate of growth for the year as a whole was very significant, the key insight from these figures is that the rate of growth moderated sharply during the year and that pattern is likely to dominate for the year ahead.
"Our expectations for average price growth this year are between 3 per cent and 6 per cent - although we do expect that there will be significantly different experiences in different sectors of the market."
The index showed that Co Leitrim recorded the fastest rate of price growth in 2006 - with a rise in prices of 29 per cent; Co Sligo recorded the lowest growth rate of 6 per cent.
But the report noted that sample size for houses in Leitrim was low during the year and that the growth figure "should be treated with some element of caution".
