House prices edged slightly higher in February

House prices edged ahead by 0.3% in February as the property market continued to "tread water", Nationwide said today.

The increase, which was only the second gain recorded since May last year, left the average home costing £161,183.

But the group saw little reason to be optimistic, saying it expected the housing market to be "sluggish" during 2011.

Annual house price inflation remained in negative territory, with prices 0.1% lower than in February last year, although this was a slight improvement on the fall of 1.4% seen in the year to the end of January.

Prices were also broadly flat, according to the three-month-on-three-month change, which is generally seen as a smoother indicator of market trends.

Robert Gardner, Nationwide's chief economist, said: "This shouldn't come as too much of a surprise. Housing market trends are closely linked to wider economic prospects.

"Given that the recovery hit a soft patch at the turn of the year and looks set to remain sluggish in the year ahead, the property market is likely to follow suit, with relatively low transaction levels and prices moving sideways or modestly lower through 2011."

The group said demand for property had levelled out, as the uncertain economic outlook kept many potential buyers on the sidelines.

But on the plus side, it said there were few signs of a glut of unsold homes building up on the market.

Instead, it said there were tentative signs that the volume of properties being put up for sale was slowing down, which could offer some support to prices.

Nationwide said with the economic recovery set to remain fairly modest, any improvement in employment and wages was likely to be slow going, leading to a subdued housing market during 2011.

Over the longer term, it expects wages to outpace house price growth, gradually improving affordability from its current level of house prices being around five times average earnings, to being closer to the long-run average of being four times higher.

But it warned that if the rate at which new homes were being built did not improve, an increase in demand would put renew the upward pressure on prices.