House prices 'increase by 0.1%'

The shortage of homes for sale in August continued to help the housing market with house prices increasing by 0.1% for the month, a study has shown.

According to the report by property intelligence group Hometrack, August house prices in England and Wales rose for the first time since July 2007, following three consecutive months of no movement.

However, the group said that the wider housing market is still to emerge from the recession, as the rise in house prices has been marked only in a limited number of areas where supply shortages were most acute.

The annual rate at which prices are declining continued to moderate during August, dropping to 6.7%.

Richard Donnell, Hometrack's director of research, said: "Taken at face value these headline results provide further support to talk of the green shoots of recovery.

"They suggest that after seven consecutive months of rising demand, agents and surveyors now believe that prices can be pushed upwards without any detrimental impact on sales volumes.

"But dig beneath the headlines and the reality is quite different. The results of the survey show that far from a national housing market on the up, the headline figures are being skewed by price rises that are restricted to relatively small pockets of the market suffering from a lack of housing for sale - primarily London and the South East."

The group said price rises were seen in only 11% of postcode districts across England and Wales, with London and the South East accounting for three-quarters of these areas, while prices remained static in the remaining 89% of the country.

London, the South East and East Anglia were also the only regions of the country to see price rises during the month, with London reporting the biggest gain of 0.3%.

There was a 1.4% rise in potential buyers registering with estate agents across England and Wales during August, but only a 0.8% lift in the number of properties they had on their books.

The mismatch between supply and demand is particularly acute in London, where there has been a 34% jump in demand during the past four months, but the number of homes for sale has fallen by 2.6%.

The South East has also seen a 5% drop in supply, but all other regions of the country have seen a rise in the number of homes being put up for sale.

Mr Donnell said: "There is a danger that an increasingly severe shortage of housing for sale in a relatively limited number of markets is impacting on prices and the headline performance of the housing market. This is creating the impression of a national housing market recovery."

He added that the market continued to remain vulnerable to an increase in the number of properties being put up for sale or a reversal in buyer sentiment, both of which could drive prices back down.