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UK property prices up again in December but market expected to be flat in 2010

Prices were up 0.4% in December, the eighth monthly increase in a row, and are now just 12.2% down from their peak in October 2007, says the index from the Nationwide building Society.

The Nationwide’s chief economist Martin Gahbauer said a year ago such a rise was unthinkable and he put it down to pent up demand in the market place and cash rich buyers driving the market forward.

The data shows that, unless there is another sharp move lower, UK house prices have recovered more quickly and fallen less far than many analysts predicted.

But the rate of price increases is slowing.

The three monthly rate of change showed price growth easing with property prices rising 2.1% in the three months through to December, down from 2.8% in the three months through to November.

‘Few could have foreseen this development at the start of the year when the near term price trend was still pointing to a repeat of the double digit annual decline experienced in 2008,’ said Gahbauer.

He explained that house purchase transactions fell by 65% between their January 2007 peak and their November 2008 low and as a result a significant amount of pent up demand had begun to build up in the housing market at the start of 2009.

With interest rates set at record lows, buyers re-entered the market, leading to a steady pick up in property transactions throughout the year, he added.

However, the market is likely to be pretty flat in 2010 with an election ahead and although interest rates are expected to remain low there are uncertainties over the labour market outlook and the supply of cash rich buyers is expected to dwindle.

‘This year's recovery has to some extent been driven by transitory factors and there are reasons to believe that it will lose momentum over the coming year.

As a result 2010 will see no significant house price movements in either direction,’ said Gahbauer.

‘However, the experience of 2009 demonstrates how unpredictable the market is at the current juncture and that one should always be prepared for the UK housing market to surprise,’ he added.