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House prices rose strongly in January according to the Nationwide - normally the first of the major lenders to report on the property market.  And it's not the only one suggesting a continued revival in the property market.  But look behind the headlines and you can see what a huge hill we have still to climb to get back to more ‘normal' activity levels. 

The Nationwide calculates that prices rose by 1.2 per cent over the month and Chief Economist, Martin Gahbauer, reckons there's a reasonable chance that annual house price inflation will be back in to double figures by the end of February.

A few days earlier, Moneysupermarket had released an analysis showing a sharp rise in the number of 95 per cent loan to value mortgages available to buyers.  Last November, there were just nine mortgage products available for people with a five per cent deposit.  Today, there are 36.  Not many, perhaps, but nevertheless, a significant increase that is symptomatic of a trend towards greater mortgage availability.   At the same time, rates across all mortgage products have begun to creep down since October last year. Rates for 80 per cent loan to value mortgages have fallen furthest, with the average rate now sitting at 4.97 per cent, 0.77 per cent lower than in October last year.

And a few days before that, HM Revenue and Customs (HMRC) released figures showing house sales last December topped 100,000 for the first time since December 2007.  The low point was a year ago when just 41,000 homes were sold in January 2009.

In short, lending is improving, activity is increasing and prices are rising.  So, is everything back to normal then?

No, not really.  If you look at the figures in more detail, you'll see that activity levels are way below previous levels.  Activity levels are important indicator of market health because most sellers and also buyers.  The more sales there are, the more liquid the market it and the easier it is to sell and buy.  In that context, sales as recorded by HMRC were around 850,000 in 2009.  That is less than half the levels seen in 2006 when there were a total of 1.67 million sales. 

As to lending, the total number of mortgages available has certainly increased to something over 2,500, but that is a fraction of the 30,000 mortgages on the market in 2007. 

Finally, the recession may be over but real incomes are not growing and disposable income (after higher taxes) may even fall.  As the Nationwide's Martin Gahbauer points out: "With pay inflation near zero or even negative, every additional increase in house prices worsens housing affordability, particularly since interest rates are very unlikely to fall any further.  All else being equal, this limits the upside potential for the current recovery in house prices".