The bank's quarterly analysis of the market has said average house prices are back to levels seen in early 2006, with the average home costing €281,600 in March this year.
The report has suggested that although supply is negative for Irish economic activity, the situation is supportive of house prices by bringing the market back into balance.
This may be good news for house buyers, but it appears renters are still suffering from a substantial rise in rates. There was a 22% increase is renting costs during the three years proceeding March 2008.
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"While prices have fallen for the past year, rents have risen considerably, implying that the marginal buyer is currently a renter in the face of the past deterioration in affordability and in response to uncertainty about the outlook for interest rates and house prices," said Dr Dan McLaughlin of the report's findings.
However, the report has suggested affordability is set to improve this year and next, which is attributed to an expected rise in national incomes. This increase is projected to be around 4.9% this year and 4.5% next year.
Mortgage lending has fallen by 29% so far this year, according to the BoI, with the lending decline expected to reach €29 billion by the end of 2008.
The report said this uncertainty has resulted in only 50,000 house completions projected for year, compared to the 88,000 peak in 2006.
The commercial property market is expected to see a 5% fall this year due to the current economic environment.
The bank report also noted the euro-zone economic slow down, which could result in a downturn in inflation. This would then prompt the European Central Bank to lower rates.
(PR/JM)
