The freefall in prices has ended but they are likely to continue falling this year by up to 10% in some cases and the bottom is not expected until the first quarter of 2010.
Some property price indices have started to rise but prices alone are not the only indication that should be taken into account when assessing the market, says Knight Frank's residential update report.
'To really understand the health of the market we need to consider transaction levels. It is only when liquidity in the market improves that we will be able to point to a sustainable recovery,' said Liam Bailey, head of residential research at Knight Frank.
'While signals from the mortgage market and from completions data are encouraging, this is only a start and there is some way to go before we can say we are on an upward path,' he added.
Prices are now 2% higher than they were in February which means that the annualised rate of price change has eased considerably from 20% earlier this year to a little over 11% now, although prices are still 17.2% below their peak level, the report shows.
Northern Ireland has led the downturn, with prices already 39% below the high they hit in 2007. Aside from Northern Ireland, where the housing market had become even more overheated than the rest of the UK, the decline in prices has been led by southern England, including London (down 20%-22%). The most resilient regions are Scotland (down 14%) and northern England (down 16%).
'In recent months we have experienced a much more benign, but fluctuating, environment in the residential market in terms of price performance. The period of continual and rapid price declines, which we saw in late 2008, has been replaced by a situation when prices are alternatively rising and falling month by month,' according to the report.
The sharp cuts to interest rates have meant that the cost of mortgage finance has fallen. In April the average two year fixed rate on a 75% loan to value averaged 4.02% and the average standard variable rate was 3.82%, the same rates were 6.06% and 7.23% respectively a year earlier, the report continues.
However, the report warns that prices will still fall further in 2009. It predicts decreases of 5% to 10% and the low point is likely to be reached during the first quarter of 2010.
Despite this sales activity is expected to rise because of government encouragement and support and due to the fact that buyers are beginning to sense that they are buying at or around the bottom of the market.
'The most significant issue for the market remains access to mortgage finance. With lower interest rates and lower mortgage rates the picture is improving, but for those without access to a significant deposit (and that still means 25% of the purchase price) rates are still relatively high,' the report concludes.
