UK house prices increased for the third month in a row in July and could end the year slightly higher than at the beginning, according to Nationwide.

Figures from the building society show that average home prices have risen 1.3% in July to £158,871.

The year-on-year fall was 6.2%, but it is still a significant improvement over the 9.3% decline recorded last month.

Nationwide said the average home values are now 1.3% higher over the first seven months of this year.

Chief economist Martin Gahbauer said: "Only a few months ago such an outcome would have appeared unthinkable."

The building society said house prices had been "remarkably resilient" so far this year despite recession and rising unemployment.

This could be because the sharp fall in transactions last year produced a pool of buyers who were ready to buy but did not want to do so at the height of the banking crisis, Mr Gahbauer added.

The data follows Bank of England figures yesterday showing the number of mortgages approved for house purchase rising for the fifth month in a row during June to the highest level for more than a year.

But the building society also warned that the current run for the property market - with prices up in four of the last five months - may not be sustained.

This is because at current rates prices would become out of kilter with average earnings, while rising unemployment would force more households to sell up.

"It is unlikely, therefore, that price increases can be sustained for long at the very strong rate observed over the last few months," he said.

Nationwide also warned of a long-term shortage in housing supply because of the deep recession in the building industry.

It expects only about 100,000 homes to be built in 2009 - the lowest level on record - as building work slides well below the annual increase in the number of UK households.

"As it is likely to take time for the economy and housing construction to recover to pre-crisis levels, the potential exists for a considerable housing shortfall to develop over the next few years," Mr Gahbauer said.

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