But the recovery was short-lived. Even though the economy has continued to grow (albeit recently at a slower rate) all the indicators - sales, prices, and mortgage advances - are now tumbling down again, in some cases to levels that are lower than ever before.
"It's a double-dip," economist Rob Thomas of leading brokers UBS said yesterday. "In terms of sustained nominal price falls, the 1990s recession is now the worst of the post-war era."
The clearest evidence of the market's problems came last week when building society figures showed home loans had reached their lowest levels since 1979. MPs from both sides of the house joined housebuilders and lenders to call on the Government to provide practical help to restore confidence.
"The housing market is in meltdown," said Sir Michael Latham, former Tory MP and adviser to housebuilders.
How did it get this bad? The blame can be laid squarely, first of all on Norman Lamont, and then on Kenneth Clarke, who not only increased indirect taxes, but targeted owner-occupiers on two counts. Cuts in mortgage interest tax relief announced in the 1993 Budget were the first blow to the fragile housing recovery. Then came rises in interest rates last year. For people already fearful of losing their jobs, taking on a mortgage, or a bigger one, was no longer an option. Now, with income support for home owners who lose their jobs being restricted, lenders expect even fewer people to want to buy a home.
First-time buyers are the elusive breed who could help kick-start the market. At the height of the housing boom, people as young as 21 were buying to get on the property bandwagon. Now the average age of the first- time buyer is 28 to 30.
Pity the poor home owners. Mortgaged to the hilt on a house with negative equity, they are encountering stress levels the pampered post-war generation has rarely before experienced. For people like Steven Aylard and his wife Susie, the lack of first-time buyers means they continue to live their lives in limbo. They each have a one-bedroom converted flat: Steven's in Herne Hill, south London, and Susie's across the capital in Kentish Town. Neither can find a buyer. Now the couple have a baby, they have had no option but to rent a house. "We can't plan our future, get the home we really want," said Mr Aylard.
When he first put his flat on the market in 1990, he was told by his estate agent that it was worth pounds 65,000. There was some interest in the flat 18 months ago, but he has still been unable to sell it with the price reduced to pounds 50,000. Susie's flat is for sale for pounds 70,000, although she has a mortgage of pounds 75,000 and expects agents and conveyancing fees to cost several thousand pounds. The couple now spend their time negotiating with three sets of managing agents; one for each of the flats which are rented out, and another for the house which they have leased. "We're living in a house without our own furniture, worried that the baby will be sick and ruin things," said Mr Aylard. "And like most people in our position we have not told the building society we are renting out the properties, so there's a worry about that."
Housebuilders, building societies and housing analysts all agree that incentives, such as abolishing stamp duty and keeping mortgage interest relief at present levels, are vital to get the market moving again. Not only are a million people still in negative equity, but businesses which rely on a lively housing market are also suffering.
"This is a tragedy that pervades the nation," said John Wriglesworth, head of housing research at the Bradford and Bingley Building Society.
"Housing for investment purposes has gone completely, and it's important that homes should be affordable. But the problem is that without the market moving at all, there is an overhang of debt, a feeling of badness."
That sense of badness, warns one of the country's leading experts on stress, is having a devastating impact on the country.
"A whole generation of people has been affected by this," said Phil Evans, director of the psychophysiology and stress research group at the University of Westminster. "Being unable to sell your property, having to keep your life on hold, is one of the most stressful things imaginable. You feel imprisoned."
Take Rose Whetstone. She bought a small terraced house in Manchester during the boom for pounds 25,000. But a change of job, and a new relationship brought her to London. Three years on, she cannot sell, she is owed pounds 2,000 by tenants who disappeared and another lodger trashed her house.
"Sometimes I can't think about anything else. I can't sleep, I start crying, thinking I will never sell it. Now I've agreed with my building society that I will accept an offer for pounds 11,000 and pay, with interest, the rest of the money I still owe."
Claire Harman has also moved south from Manchester, where she has been unable to sell a five-bedroom detached house in the city's smart suburb of Cheadle Hulme for two years, despite considering offers below the original pounds 185,000 asking price. Since she left she has had to move home twice in Oxford, where she is currently based, with her three children. "I have to keep saying to the children, 'don't do that, don't put your mug down there'. I have none of my own furniture with me. It isn't really home at all."
A week before the building societies announced their gloomy figures, the Chancellor wrote confidentially to Brian Mawhinney, the Conservative Party chairman, and told him: "It is not the cost of mortgages or houses that is holding the housing market back at present, but the general state of confidence. Confidence will only return when people are convinced that economic growth is here to stay. The best help that any government can give the housing market is to promote sustained economic growth by keeping inflation low. The Government does indeed remain committed to the principle of home ownership and the well-being of home owners."
In the next few days MPs will be pressing the Chancellor even harder to boost the housing market through measures in the Budget.
"We have warned the Government that it needs to take action," said Roger Humber, director of the Housebuilders Federation. "What happened has been disastrous for the housing market, and that means disastrous for Middle England voters."