House prices rose by 5.9% in 2009 (From Western Telegraph)

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House prices rose by 5.9% in 2009

9:41am Thursday 31st December 2009

House prices rose by 5.9% in 2009 as the UK property market bounced back from last year's double digit declines, figures showed.

The average cost of a UK home rose by another 0.4% in December to £162,103, marking the eighth straight month of price increases, according to Nationwide Building Society.

The performance in 2009 is a surprise turnaround on the hefty 15.9% price plunge in 2008 and comes despite the worst recession in the UK since the Second World War.

The figures see the past decade end on a high note for the UK property sector which had been hammered last year by the credit crunch and the banking crisis. And Nationwide said the past decade was the strongest on record for British house prices in spite of the woes of 2008.

Ten-year figures show property values rose by 117% since the end of 1999. Even with inflation taken into account, the average home increased by 68% in value compared with a 14% fall in real terms in the 1990s.

Martin Gahbauer, Nationwide's chief economist, said the increase in house prices this year "surprised most commentators". He added: "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. Although house prices are still 12.2% lower than their October 2007 cyclical peak, they have now rebounded by an impressive 8.9% since their February 2009 trough."

But the picture for 2010 is unclear, with a recent slowdown in price rises raising concerns over the sustainability of the market recovery. December's 0.4% rise is significantly below the hikes of up to 1.4% recorded in the summer.

Three month on three month growth rates - generally considered to be a smoother indicator of the underlying trend - also eased during December to 2.1% from 2.8% in November.

The past year was buoyed by "pent-up demand" as cash buyers not restrained by the credit drought entered the market, Nationwide said. Record low interest rates, a smaller-than-feared increase in unemployment together with recent stabilisation in the banking sector and signs of an economic recovery also acted as a boost.

While interest rates are expected to remain low well into 2009, there is uncertainty over the labour market and whether cash buyers can continue to support housing demand.