The first two weeks of the year brought a welter of news about the property market, but so many sources to draw from bringing it together is not as easy as it sounds.  So, what can we say so far with any confidence?

Firstly, pretty much everyone aggress that house prices recovered more ground in the run up to Christmas - that is unexpected given the usual seasonal slow down and could suggest that demand is stronger than some expected.

A number of commentators have questioned the accuracy of the main house price indices - and with some reason.  Transaction levels have been so low in recent months that some of the results issued must be based on very low numbers.  The lower the number of transactions included in the calculation, the easier it is for unusual or exceptional sales to distort the overall figure. 

Nevertheless, official figures from the Department for Communities and Local Government (CLG) also indicate that UK house prices have risen recently http://www.communities.gov.uk/corporate/researchandstatistics/statistics.  The CLG, which has particular interest in inflating house prices, says they rose 3.5 per cent in the three months ending November 2009. 

Overall, there seems little doubt that prices dipped in late 2008, dipped more sharply in the early part of 2009 and spent the rest of the year gradually recovering some, but not all, of the ground they have lost since the downturn started.  News that prices are now higher than they were a year ago, by the way, don't take in to account the falls in price that occurred earlier in the downturn.  So, for example, reports comparing prices last December with a year before don't take in to account the fall in prices that happened before December 2008.  Prices are still below their 2007 peak, but not nearly as much as some had forecast.

Will they keep rising, or are we heading for an unexpected reversal?  Very probably neither.

There has been a lot of data coming out recently to show that mortgage lending and mortgage availability has been rising gradually.  The Council of Mortgage Lenders (CML) reported that mortgage lending in December was much stronger than expected http://www.cml.org.uk/cml/media/press.  Gross mortgage lending rose 14 per cent last month to hit £13.7b, defying expectations of a seasonal dip.  The figure is up three per cent higher than December 2008 and represents the first time the annual monthly comparison has been in positive territory since October 2007.

Figures from moneysupermarket.com show available mortgage products have increased for the last three months in a row, taking the total number of mortgage products available to over 2,500 for the first time since May last year  http://www.moneysupermarket.com/c/press-releases/mortgage-milestone-passed/0008149.  The figure may still be a tiny fraction of the 30,000 mortgages to choose from in 2007, but the trend is consistent and going in the right direction.

Overall, the mortgage figures suggest that there is sufficient demand from buyers to prevent a sudden reversal of the recent recovery.  On the other hand, there seems little to push prices higher. 

To see why, take a look at some research on house prices over the last 50 years done by the Halifax (now part of Lloyds TSB) http://www.lloydsbankinggroup.com/media/pdfs/research/2010/50_Years_of_Housing_UK.pdf
Over the last 50 years, house prices have steadily risen by more than the increase in average earnings.  In Scotland's case, prices have risen by an average of 2.0 per cent a year in real terms, just above the 1.8 per cent increase in real earnings.  In short, houses are becoming more expensive relative to income.  Much of this has been made possible by the rise of double income households, but there must ultimately be a limit to the extent to which house prices can rise faster than incomes.

Affordability has certainly improved over the last 18 months or so as both interest rates and prices fell, but probably not to the extent that it will spark another sharp rise in prices.  Past market downturns have been followed by a period of relative price stability which continues until real incomes and rising affordability re-start the cycle.  It seems likely that the same will happen this time.

Interestingly, the same research from the Halifax also highlights how much faster prices in the UK have risen compared to Scotland.  Across the UK as a whole, prices have risen on average 0.7 per cent faster per year in real terms than Scotland over 50 years.  As the Halifax points out, this is because incomes in and around London have risen faster than anywhere else. A good illustration of how house prices really are determined by economic factors in the long term. 

So, with little room for price rises, but sufficiently strong demand to sustain them, we look set for a period of relative price stability. 

The potential fly in the ointment, of course, could be interest rates. Inflation raced ahead in December with the normally sedate CPI (Consumer Prices Index) rising by a full percentage point in one month.  If higher than expected inflation forced the Bank of England to raise interest rates early, that would have an effect on the economy and on mortgage interest rates. 

The recent rise in inflation was, however, forecast by the Bank and it expects inflation to fall back almost as fast as it is currently rising.  You can see the Bank's November forecast for inflation here: http://www.bankofengland.co.uk/publications/inflationreport/irlatest.htm although it now largely out of date.  Despite the higher than expected leap in inflation, the Bank still thinks that there is plenty of excess capacity in the economy and that that will put a cap on prices for some time to come.  You can expect the media to be full of dire warnings about higher interest rates, but that may not happen as soon as many expect.