House prices in England and Wales have fallen at their slowest pace in six months, research company Hometrack says, adding to mounting evidence that the housing market may be stabilising.

Hometrack said yesterday it was confident that house prices will start rising over the next few months, and raised its 2005 forecast of house price inflation to three per cent from unchanged.

The research firm said its measure of average house prices, based on agreed sales reported by estate agents, fell 0.1 per cent this month, leaving prices 0.71 per cent lower than a year ago, the report said.

The average property price stood at £162,300, down from £162,500 in the previous month and from a peak of £167,700 in June last year.

"House price deflation over the past nine months looks set to end, with house prices remaining broadly flat this month," said John Wriglesworth, Hometrack's housing economist.

"An increase in the number of buyers, helping boost of the number of sales agreed, points to a much strong market in the coming months," he said.

Activity in the housing market picked up, with sales agreed rising by 16.5 per cent.

With buyers back to the market, the discounts that are being negotiated on asking price have decreased for the second month running, the report said.

The cities which reported the worst falls were Lincoln, Cambridge, Gloucester, Plymouth and Leicester.