House prices bounce back after fall

The housing market bounced back during March after prices suffered their first fall for 10 months in February, Nationwide has said.

But despite the 0.7% increase largely reversing February's 0.8% drop, economists remained divided on the future direction of prices.

The property market has endured a slow start to 2010, attributed to the end of the stamp duty holiday distorting transactions and bad weather during the early part of the year, keeping potential buyers at bay.

But many commentators have argued that the fall in activity cannot be attributed to these one-off factors alone, and suggest the drop indicates that the housing market recovery is running out of steam.

Ed Stansfield, chief property economist at Capital Economics, said: "February's surprise drop in the Nationwide house price index was not repeated, suggesting that the recovery in house prices still has some life.

"However, with mortgage lending remaining subdued in February, the labour market still weakening and affordability on the slide once more, we think that the slowdown in the pace of house price growth will turn into renewed falls later this year."

Nationwide's three-month-on-three-month index, generally seen as a smoother indicator of market trends, showed a further slowdown in price growth this month, with a rise of only 1.6% during the three months to the end of March, compared with 1.8% for the three months to the end of February.

Figures released by the Bank of England earlier this week also showed that the number of mortgages approved for house purchase dropped for the third consecutive month to a nine-month low, suggesting activity in the housing market remains subdued.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The overall impression from recent data and surveys remains that the housing market has lost some momentum early in 2010. The Nationwide data reinforces our suspicion that house prices will be erratic in 2010, and may very well be no better than flat over the year."

But Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The rise in house prices in March should not come as a surprise. Although more supply has begun to come on to the market, it has yet to reach the level where it is matching demand. The stamp duty announcement in the Budget should provide a further boost for demand. As a result, we continue to believe that house prices will remain firm through much of the remainder of this year."