The Economic and Social Research Institute says the number of households in negative equity following the property crash stood at 160,000 at the end of last year.
That number will likely fall to 100,000 by the end of this year, and fall rapidly again, if home prices continue to rise at their annual rate of 9%, David Duffy, the senior housing expert at the ESRI said.
Mr Duffy told the Irish Examiner that the rapid rise in house prices of 8% to 9% annually would lift all households out of negative equity by the end of 2017.
“There is talk of a slowdown in house prices, but if the annual rate were to continue there would be no household in negative equity by the end of 2017,” he said.
Mr Duffy said the number of households in negative equity peaked at over 300,000 three years ago, and by value the gap between market prices and the prices paid for homes across the country totalled €16bn at that time.
In 2010, there was around €8bn worth of household negative equity, which had increased to around €16bn in 2012, but assuming house prices increase by up to 10% this year, those 100,000 households in negative equity at the end of this year would amount to €2.5bn, Mr Duffy said.
“No one would have predicted the rapid rise in house prices since 2012. We had expected it would take to 2020 for price increases to lift all those affected out of negative equity,” he said.
The ESRI says falling numbers of households in negative equity could have a significant effect in boosting consumer spending and increasing economic growth.
Research last year by Kieran McQuinn of the ESRI and Yvonne McCarthy of the Central Bank of Ireland showed a strong link between house prices and the amount consumers spend.