HOUSE prices have stabilised but recovery in the market here is still some way off, a leading international credit ratings agency said.
Standard & Poor's said prices had now fallen to a level that meant they were reasonably priced when compared with wages and with rents.
The agency expects economic recovery in this country this year and next, a move it said would support demand for housing.
"The Irish property market will likely continue to stabilise for the next two years, in our view," the analysts said.
"The heavy slump in the Irish housing market appears to have bottomed out," the report states.
House prices rose in the last three months of last year. This was the first time there was rise in a three-month period compared with the previous quarter for almost two years, S&P said.
But recovery is a long way off because of limited mortgage lending by banks and a glut of unoccupied properties.
The fact that there is little house construction is helping the market. Just 8,500 houses and apartments were completed last year, compared with 10,500 the previous year.
"This is well below the 2006 peak of 90,000 units, and below potential demand. This suggests to us that the overhang of unoccupied properties should slowly erode," the housing report states.
S&P points out that larger areas such as Dublin, Galway and Cork have registered property price rises.
And there has been a rise in the number of transactions, according to data from the new property price register.
There was a surge of 37pc in the number of transactions last year, when compared with the previous year. But in the year to March, there was a fall-off.
This was put down to the ending of mortgage tax relief last year, which prompted a rush of buyers as 2012 came to a close.
However, the introduction of the property tax this year may act as a drag on the market.
"While momentum appears to be building in the housing market, the rate of increase in transactions and housing lending this year may not exceed 2012, as mortgage-interest relief has ended," the report said.
Only Britain and Germany are expected to see house prices rise this year, according to S&P.
Meanwhile, AIB chief executive David Duffy said it was regrettable that the bank had to raise interest rates on variable rate home loans, but insisted the move was fair.
The bank must charge market rates for loans where it could, he said.