House prices increased 0.3% in January, according to Hometrack.
This, the firm said, represented the lowest rate of growth for six months as seasonal factors eased the upward pressure on prices.
Hometrack expects positive news on the economy and employment to support improved market sentiment in the coming months.
It says the scale of house price inflation in the near term depends upon whether there is a sustained supply response from sellers and how far this improves the balance between supply and demand which is at its widest level since 2009.
Increased activity from first time buyers and investors, who account for up to four fifths of all sales, erode supply more quickly as these buyers represent net new demand as they do not have property to sell.
The supply of homes for sale decreased by 6.6% in January. Supply has contracted over the last five consecutive months, declining by a total of 17%.
Hometrack expects supply to register a seasonal rebound in the February survey. If sellers remain slow or reluctant to enter the market, in expectation of further price gains, then the pressure on prices will build rapidly once again, it said.
Richard Donnell, director of research at Hometrack, said: “House prices continued to increase in January despite a seasonal slowdown in market activity. Average prices grew 0.3% over the month with the annual rate of growth increasing to 4.8% (from 4.4% in December).
“Despite the lowest monthly increase in house prices for six months (July 2013), underlying market conditions remain strong with the market starting 2014 in a better position than a year ago. The time on the market indicator currently stands at 8 weeks, compared to 10 weeks in January 2013. The proportion of the asking price being achieved has narrowed from 93% to less than 95% over the same period.
“Market conditions remain strongest in London and southern England where price increases were highest in January (London +0.6%, South West and East Anglia +0.4%). These regions have also seen the greatest declines in the supply of housing for sale in recent months.
“While London has been the engine for house price growth in recent years, the survey shows the rate of growth increasing in other markets as confidence spreads. Dorset (0.9%), Cambridgeshire (0.7%), Northamptonshire (0.7%), Devon (0.6%) and Essex (0.6%) all registered above average growth in January.”
