THE downturn in house prices slowed significantly in July with a monthly drop of just 0.2pc.

While prices were still falling, this was the smallest decline in the value of homes since property prices first started to fall in March 2007.

The 0.2pc fall in values in July compares with a 0.6pc drop in June, and a 1.2pc decrease in May.

But experts warned against reading too much into the fact that the rate of decline had eased in July because so few houses were sold in the summer.

Decline

Residential property prices have now fallen back by 9.7pc in the past year, according to the Permanent TSB/ESRI house price index.

The average price of a house nationally is now down to €272,946, a decline of almost €40,000 from the property market's peak in February 2007.

This time last year the average price paid for a house was €302,605. At the height of the market, the average price paid for a domestic property was €311,078.

House prices are now 12.5pc down on February 2007.

This means the average house has been shedding about €100 in value every day for the last 17 months. Permanent TSB's Niall O'Grady said this could be because property trading was always "light" at this time of year.

A breakdown of the figures shows house prices in Dublin fell by 0.6pc in July to take the average price paid for a home in the capital to €377,316. This was a €20,000 decline on the peak figure from December 2007.

House prices in the commuter counties around Dublin fell more sharply -- by 1.2pc. Prices are now down 7pc this year in the commuter areas to an average of €298,866.

Prices of new homes fell 0.2pc in the month, while second-hand prices were also down 0.2pc. For first-time buyers, house prices were 0.4pc lower in July compared with June. The average first-time buyer paid €245,539 for a house in July.

Deflation

Goodbody economist Dermot O'Leary said the latest figures showed house price deflation was easing, but he said house prices could fall for some time.

He added this was because of the small number of property transactions in the summer months, banks tightening lending criteria and there being up to 55,000 unsold second-hand houses on the market.

"We are sticking with our view that prices will fall by 30pc from peak levels. Anecdotal evidence points to the view that prices have fallen significantly further than 12pc," he said.

- IRISH INDEPENDENT, Charlie Weston, Personal Finance Editor