UK house prices unexpectedly rose in December after two straight months of falls, defying widespread expectations of another tumble amid other evidence of a rapidly-cooling market.
But Halifax, Britain's largest mortgage lender, said the annual rise in house prices slipped to 15.1 per cent in the three months to December from 16.8 per cent in November, the weakest gain in more than a year.
Economists said the monthly data, which tend to be volatile, were not a sign that the housing market is poised to re-ignite and did not alter their view that interest rates will remain on hold at 4.75 per cent for several months to come.
"We suspect that December's rise will be reversed in the coming months. House price falls, not rises, will be the dominant story of 2005," said Ed Stansfield, property market economist at consultancy Capital Economics.
"The month by month volatility of the Halifax house price data should not distract from the fact that there is a clear downward trend in house prices," he said.
Indeed, mortgage approvals - loans agreed but not yet made - which are widely viewed as a good leading indicator of house prices, tumbled more than 40 per cent in November on a year earlier to their lowest level in nearly a decade.
"Lower approvals take time to filter through to lower house prices, usually about five or six months," said George Buckley, UK economist at Deutsche Bank.
Sterling rose against the euro and the dollar but bond yields and interest rate futures mostly shrugged off the data as they did not alter the outlook for interest rates.
Halifax said the rise in December brought the average price of a British home up to a seasonally-adjusted £162,086 compared with £159,947 in November.
House prices in Britain have more than doubled since the late 1990s and the market has only begun to slow considerably in the second half of last year.
Sky-high prices after several years of double-digit house price inflation rates have priced out many first-time buyers, a linchpin of the market, as Halifax noted in its release.
Halifax said it sees house prices falling two per cent this year but it also expects the Bank of England, which has raised rates five times since November 2003, to cut them to 4.25 per cent from 4.75 per cent by end-2005.
"A strong labour market, historically low interest rates and a shortage of housing supply... should curb the extent of the downturn in the housing market and result in only a slight fall in house prices this year," said Halifax economist Martin Ellis.
Those comments echo those from housebuilder Redrow Plc which said on Thursday the housing market will respond positively to what it also expects will be lower base interest rates later this year.
But others are not so sure.
"Looking through the monthly noise in the data, the extent of the deceleration in price gains remains very clear," said Malcolm Barr, UK economist at JP Morgan Chase, who predicts average monthly falls of 0.5 per cent throughout 2005.
"The data themselves suggest that a shift into a declining house price environment is imminent if not already taking place."
Other figures showed that housing is not the only big-ticket item feeling the pinch of higher interest rates. New car registrations fell 7.1 per cent in December on a year earlier, the Society of Motor Manufacturers and Traders said.
SMMT said it expected registrations to fall four per cent to 2.47 million units this year compared with 2.57 million in 2004, which was just a whisker below a record in 2003.
A separate report from NTC Research showed that growth in permanent job placements slowed in December to its weakest pace in more than a year.