House prices rise for fifth month in row but Halifax warns of setbacks for year ahead

The recovery in house prices that we've seen in the past six months is unlikely to be sustained next year, analysts warned yesterday. Higher unemployment and downward pressure on household incomes are likely to slow demand, despite further evidence that the market is continuing to rise.

The monthly Halifax house price index shows that house prices jumped by a bigger than expected 1.4 per cent in November, spurred on by higher demand and a shortage of properties for sale. The increase was the fifth successive monthly rise with prices more than 4 per cent higher over the first 11 months of the year. The average cost of a house in the UK is now £167,664.

However, despite November's rise, the average house is still 1.6 per cent cheaper than this time last year.

"The recovery in house prices since the spring has been driven by increased demand for property, largely due to the improvement in affordability for existing homeowners and first-time buyers who can raise the necessary deposit," said Martin Ellis, a housing economist at Halifax.

However, yesterday's report also signalled that the improvement in house prices is unlikely to last, with the market set to face a cocktail of problems in 2010.

"The continued rebound in house prices is hard to reconcile with the weak economic backdrop, the still-tight mortgage lending criteria and the fact that the market remains overvalued," said Seema Shah, a property economist at Capital Economics.

"As a result, once the shortage of property on the market eases, we suspect that house prices will fall again... With the economic recovery likely to be lacklustre, unemployment set to rise and household incomes likely to be under downward pressure from pay freezes, house price falls remain the most likely outcome next year."

The Halifax survey echoed several reports that have indicated a strong recovery in recent months. Nationwide said last month that house prices had risen by 2 per cent in the year to October. Like Halifax, however, Nationwide warned that the housing market is "not particularly healthy", with transaction levels still low.