House prices are predicted to slow to as low as 3% this year, indicating a potential ceiling in the market.

A report by real estate agency Sherry FitzGerald predicts an easing of price increases - which were at 9% in 2022 - while also forecasting a pessimistic outlook for property construction this year.

There were almost 30,000 new homes built nationwide in 2022 - the highest on record since 2006 and a 46% increase on 2021.

But the Sherry FitzGerald Irish Residential Market Review warns the increased supply of new homes is "unlikely to be repeated in 2023".

Despite this year's supply increase, output is still far below what is necessary to meet demand. The current average price across the State is a record €354,000.

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The Department of Housing is due to revise the annual housing targets contained in its Housing for All plan, which is set at 33,000 new homes per year.

The department's internal research said targets are outdated due to a rise in population and the increase in refugees arriving into the State.

And the report says: "Latest estimations by Sherry FitzGerald research suggest that over 50,000 units per annum are required over the next ten years. There are worrying projections in relation to construction supply which will, in an optimistic scenario, remain flat and at worst contract this year.

"For a number of reasons, the strong completions recorded in 2022 are unlikely to be repeated next year. Commencement activity, which saw a bounce in 2021, as construction sites reopened, is now waning."

It adds: "The most recent data from the Department of Housing shows that in the 11 months to the end of November 2022, approximately 25,150 residential units were commenced across Ireland. This is a 13% reduction on the same period in 2021."

Planning permissions granted are also down, with latest Central Statistics Office data showing a 41% decline in the third quarter of 2022. The report says: "The expectation is for a contraction in construction activity during 2023, reflecting the reduction in commencement levels recorded during 2022."

The report notes that the divergence in price trends between Dublin and the rest of the country will continue to narrow, and that nationwide, "overall prices [are] anticipated to increase by less than 3% in the year ahead".

In Galway city, sale prices for three-bed homes saw a drop of almost 3% since last month, to an average sold price of €325,200.

Sale prices for four-bed homes in Galway city have also dropped, by around 12% to an average sold price of €397,895.

Overall, there has been a 3% increase in the average sold price in the city, which is now €356,915.

Estate agent Keller Williams's senior negotiator, Liam Farragher, said: "We can see a lot of decreases in the average prices this month, but bear in mind that January is a notoriously quiet month for transactions. We expected this to pick up quite a bit in February as a lot more people will be entering the market because of the new lending limit increases."

The report notes that while the economy performed well in 2022 despite challenges posed by the war in Ukraine, inflation and supply-chain disruption, the outlook is "less positive" for 2023, with challenges such as rising interest rates and decreasing consumer sentiment set to "impact growth".

However, the report adds: "That said, the Irish economy is expected to enjoy real GDP growth of 3% and modified domestic demand growth of 2.2% - significantly ahead of forecasts for the UK and Eurozone."

The report's rental market insights make for stark reading and the situation is worsening amid an "exodus" of landlords.

The report states: "Unfortunately, as has been the trend for over a decade, the exodus of landlords from the rental market continued unabated in the year, with just 13% of purchases made by investors.

"Comparatively, 36% of all sales were investors selling their properties, signalling a huge disparity between those entering and exiting the market."

It estimates around 21,000 of the 58,400 properties transacted in 2022 were investors leaving the market, while just 7,500 were investors buying property.

Low supply means rents are predicted to continue rising.