UNDER A SCENARIO being considered by the Central Bank stress tests, house prices could fall by almost 30 per cent in the next two years.

The tests, conducted by Blackrock Solutions, aim to uncover the size of potential losses at Allied Irish, Bank of Ireland, Irish Life & Permanent and the EBS Building Society – and to determine how much of the €35 billion allocated to the banks in the EU/IMF bailout deal will be needed.

Anglo Irish Bank and Irish Nationwide Building Society will not be tested as they are to be wound down.

The tests suppose that prices could fall by 13.4 per cent in 2011 and a further 14.4 per cent in 2012 before beginning to recover in 2013. If this scenario were to be played out, the drop in house prices since the peak of the market in 2007 would equal 55 per cent, reports the Irish Times.

However, the worst case scenario would see prices fall by 17.4 per cent in 2010 and a further 18.8 per cent in 2012 – a 60 per cent fall from peak prices.

The tests also spell an uncertain future for the commercial property market, with speculations of a drop ranging from 2.5 – 22 per cent being considered.

Alan McQuaid, chief economist at Bloxham Stockbrokers, said that increasing political turmoil around the globe could seriously affect Ireland’s economic recovery: “Given what is going on in the world, with Japan and Bahrain, there could be a slowdown in global growth and Ireland is an open economy and hugely dependent on the international markets for exports. There is no growth at all on the domestic side and exports would be hit by a global deterioration,” reports the Guardian.

The results of the tests will be published on 31 March.