Irish house prices are to drop by 6% in 2008 and are unlikely to recover next year, according to multi-national ratings agency Standard & Poors.

In a recent report, Standard & Poors Economist Jean-Michel Six predicted that the current downturn in the housing market will continue well into 2009.

He said the drawn out correction will act as a drag on the construction industry, which accounts for one quarter of the Irish economy.

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"We expect house prices to decline by about 6% this year and stay approximately flat in 2009," he said. "So the sharp and rapid slowdown in the sector will have knock-on effects."

The report forecast that GDP will average less than half of the growth enjoyed in the Celtic Tiger years (1994-2006), at 2.3% this year and 2.9% in 2009.

Mr Six also notes that Ireland has one of the highest levels of household debt in the eleven Euro countries - at 175% of disposable income last year.

However, the economist said that houses are becoming more affordable, which will support market activity in the longer term.

Further improvements will be seen if mortgage rates are cut along with tax credits and bands.

(VB/JM)