AIB expects house prices to rise by at least 12 per cent this year but the market is giving mixed signals about future activity.
The bank's latest housing market bulletin states that while current activity remains buoyant, registration and commencement data paint a murkier picture about the strength of activity in the opening months of 2006.
The AIB report notes that registrations rose by 9.5 per cent year-on-year in the first five months of the year, pushing the cumulative 12 month total to a new record high of 64,786 in May.
Signs advertising houses and flats for sale in Dublin.
On the other hand, the report points out that provisional data show commencements down 17.6 per cent year-on-year for the first three months of the year.
As a result, the cumulative 12-month total to March at 74,400 was at its lowest ever in the short history of this series, which is only available from December 2004.
"It remains to be seen whether the downturn in commencements is the beginning of a trend or merely a blip," according to the report written by AIB's economic research team.
"However, we will be following the data closely to see whether a turning point has been signalled," it adds.
AIB expects the ECB to hike official rates by 0.25 per cent to 2.75 per cent at its meeting tomorrow.
"We expect official rates to rise further to 3.25 per cent by end year. This, plus continuing rising house prices, will add to already deteriorating affordability levels," AIB said in the bulletin.
The Irish property market has so far defied all predictions of a slowdown and according to the permanent tsb index prices rose nationally by 1.4 per cent in April, the ninth consecutive month of price increases of 1 per cent or above.
As a result, the annual rate increased yet further to 13.2 per cent from 12.1 per cent in March and has more than doubled over the past six months, from September 2005's low of 6.1 per cent.
Given the low level of prices rises in May/June 2005, AIB expect house price inflation to increase even further in the next couple of months, at least and expects a rate of at least 12 per cent at the end of the year.