Fifth monthly fall in prices confirms housing market gloom

House prices have fallen for the fifth month running, figures to be released by the property analyst Hometrack will show today. The data will reveal that the price of the average home fell by 0.2 per cent during February, reducing the annual rate of house price inflation to just 1.4 per cent.

However, Hometrack said it was cautiously optimistic about the outlook for the property market, with the first signs for some time of an improvementin demand.

Hometrack has seen a small increase in the number of new buyers registering an interest in the market, compared with falls in recent months. This additional demand slowed the monthly rate of house price falls from0.3 per cent in both January and December, the analyst added.

"In the wake of the credit crunch, demand for housing fell by 4 per cent, but the latest Hometrack survey shows a small yet important turnaround in demand over February," said Richard Donnell, Hometrack's director of research. "The modest increase in new buyer registrations is evidence of firming demand, largely on the back of recent interest rate cuts, with London and the South-east registering the largest increases in demand."

Nevertheless, Mr Donnell warned homeowners not to expect any significant change of fortune over the coming months. While there was an increase of 9 per cent in the number of registrations of new buyers in February compared with January, the same month saw rises of 25 per cent in both 2007 and 2006.

"While we expect demand to continue to improve in the coming months, it is too early to talk of a major turnaround in the fortunes for the housing market," he added. "A small but growing number of buyers appear ready to dip their toes in the market again, but any upward pressure on prices is likely to remain limited for the foreseeable future."

One additional problem for homeowners is that the supply of new housing has not slowed at the same rate as demand. While supply increased by 16 per cent last year, compared to a 25 per cent rise in demand, this year the two are broadly in line, limiting scope for appreciation.

Hometrack also warned that the housing market remained patchy across the country, with the falls confined to a third of geographical areas. In some regions of the country, notably London and the South-east, where supply remains limited, prices are still rising.