House prices rose at their fastest rate for 18 months in October after a steep drop during the previous month, figures show today.

The average cost of a home rose by 1.8% in October, partially offsetting September's record fall of 3.7%, according to Halifax.

But despite the increase, the group warns that the underlying trend for house prices was still downwards.

Low number of completions

Property transactions are running at around half their normal level, and this has increased the volatility in monthly house price changes, contributing to the mixture of price rises and falls seen in 2010.

But the quarter-on-quarter change, generally seen as a smoother indicator of market trends, shows an acceleration in the rate at which property prices are dropping.

Homes lost 1.2% of their value during the three months to the end of October, the biggest quarterly decline since June 2009, although the group points out that the slide is well down on quarterly falls of 5% and 6% in the second half of 2008.

Martin Ellis, Halifax housing economist, says: "An increase in the number of properties available for sale in recent months, together with a decline in demand, has put some downward pressure on prices.

"We do not believe that prices are set to fall sharply over a sustained period. Interest rates are likely to remain very low for an extended period, which will continue to support the improved mortgage affordability position for homeowners."

Annual growth still decelerating

Halifax reports the average home now costs 164,919, 6.6% above the trough reached in April 2009. Nationwide Building Society published figures last week suggesting prices fell by 0.7% during October, making the average price 164, 381.

Halifax notes house prices during the three months to the end of October were 1.2% higher than they were in the same period a year earlier, although the annual rate of growth declined for the fifth consecutive month.

But property values have fallen by 2.3% since the start of 2010, and look set to end the year in negative territory if current trends continue.

Howard Archer, chief UK and European economist at IHS Global Insight, says: "Does the 1.8% rebound in house prices in October reported by the Halifax significantly change our view that house prices are likely to soften by around 10% by the end of 2011? In a word, no.

"Latest housing market data and surveys have been consistently weak, and the housing market really does not seem to have got much going for it at the moment."

Further reading/Key links

Valuation Loophole: Free House Price Valuation
Cut home loan debt: The Free Remortgage Guide, The Free Mortgage Guide
Latest House Prices: Nationwide, Land Registry, Halifax