Was it as bad a year for the house market as some may remember? Despite economic gloom, UK house prices grew by 5.9% during the year, making some recovery from the massive falls seen last year, the Nationwide has said.

The growth may surprise some, however, Nationwide said that with house purchase transactions having fallen by 65% between their January 2007 peak and their November 2008 low, a significant amount of pent-up demand had begun to build up in the housing market at the start of 2009. As interest rates hit record lows, those potential buyers with enough cash to circumvent tight credit conditions re-entered the market, leading to a steady pick-up in housing transactions throughout the year.

Martin Gahbauer, Nationwide’s Chief Economist said: “The re-entry of cash rich buyers into the market coincided with an extremely low supply of property available for sale, as low interest rates limited the number of distressed sales and a significant number of home movers decided to offer their properties for rent rather than sale. This restriction in supply meant that even a relatively modest pick-up in demand was able to put upward pressure on house prices.

“There are of course other factors that have been important in driving the recovery of house prices. Most notably, unemployment has not risen by as much as would normally be the case in such a deep recession, as many employers have kept workers on using reduced hours and lower pay. In addition, the stabilisation of the banking system and emerging signs of economic recovery have helped to boost consumer confidence and tempt previously hesitant buyers back into the market.”

Main Points
* Average cost of a home in December 2009: £162,103
* House prices rose by a further 0.4% in December
* Year-on-year house price inflation up from 2.7% in November to 5.9% in December
* Future outlook for house prices still uncertain

However, looking into 2010, uncertainty remains the dominant factor. Interest rates, employment and whether cash based buyers will continue to keep the market going all remain in doubt.

At this stage, Nationwide believes that 2010 will see no significant house price movements in either direction. 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.”

Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, concluded:”House prices rose by a further 0.4% in December, continuing the recent trend of moderate month-on-month increases. The 3 month on 3 month rate of change – a smoother indicator of the near term price trend – dropped from 2.8% in November to 2.1% in December, as house price increases toward the end of the year moderated in comparison to those seen in the summer.

At £162,103, the average price of a typical UK property has ended the year 5.9% higher than at the end of 2008. 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.”