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

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 (see the Free House Price Valuation guide).

And Nationwide says 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 chief economist, says the increase in house prices this year "surprised most commentators".

He adds: "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."

2010 outlook

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 says.

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.

Gahbauer says: "This year's recovery has to some extent been driven by transitory factors and there are reasons to believe that it will lose momentum over the coming year.

"At the same time, there is no obvious catalyst on the near-term horizon that would trigger significant renewed falls in prices.

"At this stage, therefore, it seems likely that 2010 will see no significant house price movements in either direction."

Regional variations

The group's figures show that London saw the strongest growth throughout 2009, with the average home in the capital now costing 276,088 - 7% more than it did a year ago.

Northern Ireland was the worst performing region, with prices falling 6.7% to 137,949.

Carlisle in Cumbria was the best performing of all the UK towns and cities in 2009, with prices soaring by 10% to 136,666.

Leicester suffered opposite fortunes, with home prices down 9% to 141,643.

Over the past decade, Wales notched up the biggest rise in house values, with an 82% hike in real terms, after inflation.

England saw the weakest growth in the noughties after prices increased by 65%.

Howard Archer, chief UK and European economist at IHS Global Insight, says: "While the Nationwide data indicate that house prices ended 2009 still on an upward track from their February low, the markedly reduced increases in the final months of the year suggest that the rally is flagging.

"This fuels our suspicion that house prices are likely to suffer a modest relapse in 2010."

Further reading/Key links

Valuation loophole: Free house price valuation
Cut homeloan debt: Cheap Mortgage Finding
Latest house prices: Nationwide, Land Registry, Halifax