There is a "very low probability" of a drop in house prices similar to that predicted by the Economist magazine this week, according to Bank of Ireland's chief economist. Joe Humphreys reports.

Dr Dan McLaughlin said the magazine's case for a 20 per cent fall in prices over the next four years was based on a number of "specious" arguments.

"First, they said this before - about 18 months ago - and we are still waiting. Second, they point to Hong Kong as a possible example of what will happen here. But they don't mention the massive demand shock which occurred there when the British left."

He added the Irish market had to adjust from an environment where it was extremely expensive to borrow money to one where it was extremely cheap, and "to ignore that factor, I think, is wilful".

His comments follow predictable outrage within the property industry about the Economist survey, which was based on data from global house-price indices. Dublin was one of three cities where the danger signals were said to be "flashing red".

Ms Marie Hunt, associate director of the Gunne Group, described the report as "scare-mongering", and said it failed to tally with its extensive research on the Irish housing market.

"Your survey, and the media attention it has generated, unnecessarily undermines confidence among the Irish general public," she said, in a letter to the magazine yesterday.

Dr McLaughlin noted the increase in housing supply in Ireland was "unprecedented in the western world. Last year's 57,000 houses added 4 per cent to the Irish housing market. That's four times the order of growth in the US".

While he said there was a risk of over-production in certain areas, "to get a sustained fall in prices there must be some form of demand shock".

This could occur through a major increase in interest rates or a substantial increase in unemployment, neither of which was very likely in the current environment, he said.

Mr Colm McCarthy of DKM Economic Consultants was more pessimistic in his outlook due to the fact that "the fundamentals in the economy are not that positive, and are going to become less so over the next 12-18 months".

While he was not predicting a collapse in the housing market, he said he believed it had peaked. "How much it will slip is anyone's guess."

Low interest rates had protected the market to date, he said, adding: "If interest rates were at more normal levels I think property prices would have gone down a little already.

"But money is very cheap and it may get even cheaper if the European Central Bank cuts rates again."