House prices edge up 0.2% in 'largely static' market

The group said activity in the market had been "largely static" since the start of 2010, enabling house price inflation to cool after prices were pushed up last year by a shortage of supply. It added that it expected house prices to end the year at around the same level at which they started it.

The figures contrast with statistics reported by Nationwide last week, which showed that house prices had fallen by 0.9% during August, following a drop of 0.5% in July. Recent data from the Bank of England also showed that only 48,722 mortgages were approved for house purchases during July, a level economists consider to be consistent with house price falls.

The gloomy figures caused some commentators to predict the housing market was heading for a double dip, with one economist warning that prices could fall by as much as 25% between the start of this year and the end of 2012.

But other commentators said the recent dip in house prices was not unhealthy as the recovery in the housing market had got ahead of improvements in the wider economy.

Martin Ellis, Halifax's housing economist, said: "The market is broadly stable with house price inflation having cooled since last year when supply shortages helped to push up prices. The improved economy, strengthening labour market and low interest rates are all supporting housing demand. We expect UK house prices will remain static overall in 2010."

But others are less optimistic, pointing out that the lack of mortgage finance is limiting the number of buyers able to enter the market. Many potential buyers have also adopted a "wait and see approach" due to concerns about the state of the economy, job security and the impact of future tax rises.

Howard Archer, chief European and UK economist for analysts IHS Global Insight, said: "On balance, while we believe that a sharp correction in house prices is unlikely, we do expect them to soften by around 3% over the final months of 2010. Furthermore, it is hard at this stage to be optimistic about house prices in 2011 as the fiscal squeeze will increasingly kick in, which will hit people's pockets and lead to serious job losses in the public sector.

"Consequently, a further drop of around 5% in house prices looks highly possible in 2011, and the drop could well be steeper still. Much will depend on mortgage availability and the number of houses coming on to the market, as well as how well the economy holds up. Therefore, we suspect that house prices will be some 10% lower by the end of 2011."

Halifax said annual house price inflation had fallen slightly to 4.6% during the three months to the end of August – the third consecutive month during which it has declined. The average home now costs £167,953, 9% above the low reached in April last year, but 16% below the August 2007 peak.