The latest figures from Nationwide Building Society show that prices fell back by 0.2 per cent in February, following a very strong rise of 1.5 per cent in January.
The average house price in the UK is now £158,578 – 3.7 per cent higher than at this time last year.
Commenting on the figures Greg Fuzesi, Nationwide’s senior economist, said: “As we enter the all-important house buying season in March it will show whether Februarys fall is just a pause before the spring rush, or the first sign of weak market fundamentals weighing down on prices. We expect the weaker economic factors to begin to dominate over the next 2-3 months and to prevent strong house price rises in 2006.
Fuzesi explains that house prices tend to move seasonally, driven up by higher demand and activity in the warmer months and falling off towards Christmas.
However, the number of mortgage approvals for house purchase rose sharply throughout 2005, reaching another high of 122,000 in December raising the question of how much demand remains in the market to be unleashed in the spring.
“There are two reasons why the pickup in activity this spring may not turn out to be strong. Firstly, many first-time buyers continue to be priced out of the market. Secondly, uncertainty about the strength of the economy may lead to the delay of some house purchase decisions. A complicating factor is that buy-to-let investors seem to have been behind some of the increase in recent activity. This situation makes forecasts more difficult, says Fuzesi.
Current mortgage approvals still suggest the existence of some demand, but Fuzesi believes that Februarys 0.2 per cent fall in house prices is a reminder that fundamental drivers of the market remain weak.
