Bank of Ireland says the Irish housing market is cooling in a "soft manner" and that last year was most likely the cyclical peak in terms of growth.
In its quarterly review of the market, the bank predicts house price inflation will be around 3 per cent this year with house completions forecast at 82,000 - down from its previous estimate of 85,000.
The bank notes that private sector rents have risen sharply of late - 10.3 per cent in the 12 months to February - which it said implied demand for housing remains firm and that rental yields are beginning to rise.
The review said although house price inflation has slowed markedly, with prices rising by just 0.3 per cent in the three months to January, the annual change was still over 10 per cent.
Dublin prices were the strongest, rising by over 1 per cent over the three months, and by 14.7% in the year.
The report said that expectations of a reduction in stamp duty may be a factor in persuading some people to postpone purchase.
It said these expectations are unlikely to be dampened in the current pre-Election period, but a more fundamental factor is affordability, which is expected to deteriorate further into 2007 and 2008, before improving subsequently.
Gross mortgage lending for house purchases will again be around €25 billion and the growth in the level of outstanding mortgage debt will still rise by around 20 per cent, it said.
Bank of Ireland chief economist Dan McLaughlin said: "The macro-economic backdrop has not materially changed of late; employment grew by 85,000 in the twelve months to November 2006, accompanied by a similar growth in the labour supply, in turn augmented by substantial immigration."
Dr McLaughlin said: "There has been a series of high profile redundancies over recent months but these layoffs are in line with the five year trend which has seen redundancies running at over 20,000 a year."
"The 2007 Budget also provided a substantial fiscal incentive for first time buyers, with a couple now allowed to offset 16,000 of mortgage interest against tax," he said.