The rapid decline in Irish house prices and the rate of the current mortgage slump has slowed, according to new figures.

House values have now levelled to November 2005 prices, according to the Bank of Ireland's quarterly analysis of the Irish property market. However, house prices are continuing to fall.

Last month's price fall was recorded at 0.2%, which reduced the previous annual pace of decline from 9.7% to 9.4%.

The Bank of Ireland has now projected an 8% fall for the full year.

Supply and demand factors have contributed to the continuing slowdown in mortgage lending, according to the bank.

The weakening of mortgage turnover has been effected by the ongoing international 'credit crunch' and stricter credit controls.

The number of new mortgage agreements has already fallen by 13.4% this year.

Despite this, the second quarter of 2008 saw a slight rise from the first quarter. During the first quarter fewer than 29,000 new mortgages were supplied, this grew to 35,000 in the second quarter.

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Dr Dan McLaughlin, Chief Economist at the Bank of Ireland, said: "The housing market is still in the throes of correction and it may well be 2009 before signs of stability emerge, particularly in the wake of the ECB rate rise in July.

"However, affordability has improved in the last 18 months and the ratio of house prices to income is expected to fall further to 5.8% in 2009, which would take it back to the levels existing just prior to Ireland entering the European Monetary Union."

Falling prices have prompted a stern response from suppliers. House completions fell to fewer than 28,000 during the first six months of 2008.

According to the Bank of Ireland, total new stock will reach 50,000 by the end of 2008, but this is still substantially less than last year's 78,000.

This would be the lowest percentage addition to the housing stock since 1996.

Market indicators have suggested housing starts could be even weaker leading into 2009, with the bank projecting less than 40,000 completions during the full year.

Dr McLaughlin said: "Sentiment and expectations can change, but the current economic backdrop is clearly negative, given weak consumer confidence, a rise in unemployment and persistently high inflation, which is eroding real incomes.

"On a more positive note, inflation may have peaked, given the recent fall in oil prices and the market is now pricing a rate cut by the ECB in the first half of 2009, which would be positive for the market."

(PR/JM)