Property prices continue steady recovery

The housing market continued to show signs of recovering during December with prices rising by 0.8%, Government figures showed today.

The increase pushed annual house price growth further into positive territory, with prices 2.9% higher than they had been a year earlier, up from an annual gain of 0.5% in November, which was the first positive figure since June 2008.

But the figures from the Department of Communities and Local Government also showed a slow down in the rate at which property values are rising.

The key three-month-on-three-month growth rate, which is generally seen as a smoother indicator of market trends, eased slightly to 2.9% during the final quarter of the year, down from 3.1% in the three months to the end of September.

Despite the recent strength of the housing market, economists are continuing to predict the recovery will run out of steam during the second half of this year, with many expecting further price falls.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The latest data on house prices from CLG provides further evidence of the recovery in the residential market."

He said the fact that mortgage availability was improving and rates were coming down, should continue to push house prices higher for at least the next few months.

But he added: "Although things are looking better at the moment, the second half of the year is likely to be more challenging again.

"As a result, we suspect that the price trend is likely to stabilise and possibly turn down in the latter part of 2010."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "House prices seem likely to rise further in the near term given the ongoing shortage of properties.

"Even so, we suspect that a modest correction in house prices will occur at some point in 2010 and they will be essentially flat over the year as a whole.

"The overall economic environment is still far from supportive for house prices while credit conditions remain pretty tight."

The annual rate of house price inflation improved in all regions of the UK during December, the CLG figures showed.

Northern Ireland is now the only area where property costs less than it did a year earlier, although the annual rate of decline eased to 6% during the month, down from 10.5% in November.

London continues to lead the recovery with annual price growth of 4.9%, followed by the North East at 4% and Scotland, where prices have risen by 3.8% during the past year.

Across the whole of the UK the average home now costs £200,307, the highest level since October 2008.