THE doomsters who have been predicting a collapse in house prices appear to have overestimated the threats to the property market. The worst may be over as surveys point to tentative recovery.

The Royal Institution of Chartered Surveyors (Rics), which has been reporting falling house prices since the middle of last year, believes that property values will begin to rise again over the next few months.

While surveyors reported further falls in September, the rate of decline was the lowest for 14 months. Rics, along with estate agents, reported increased demand from buyers which, if it continues, should prevent further falls and could even result in slight rises.

Hamptons International, an estate agent, saw 13% more buyers registering in September than in the same period last year. The number of people on its London books jumped by nearly half.

The renewed demand stems from increased confidence, helped by August’s reduction in interest rates.

But Rightmove, a property website, believes another factor is the fact that house prices have not fallen as much as some analysts were warning. This has given buyers the confidence to re-enter the market as the fear of losing money on a property purchase has receded. There may also be a fear of missing out on bargains if prices are about to recover.

Estate agents also report an increase in the number of transactions. Liam Bailey at Knight Frank, a big London agency, said: “The most positive news is not that prices may be rising, but that deals are being done and the market is moving. Between January and April sales were about 25% below average. It’s quite staggering how things have turned around in the last couple of months. We are now back to average levels, and are seeing more transactions than at this time last year.”

This increase in transactions is reflected in lending figures. The number of people taking out home loans has increased for two months running, according to the Council of Mortgage Lenders (CML). Its latest figures show that gross lending rose 4.3% in September to an estimated £28.1 billion. This is one of the highest monthly lending figures on record, 11% up on last September.

A supply shortage is also helping to reinvigorate the market. While buyer confidence is on the up, many would-be sellers still seem reluctant to put their houses on the market.

Ursula Sadler of Hamptons said: “Many purchasers have returned to the marketplace and are seeking to move home before the end of the year. On the other hand, vendors appear to have little confidence in the market, preferring to postpone selling until next spring. The result has been a definite shortfall in the supply to satisfy renewed demand.”

Hamptons therefore believes that those trying to sell now will find the best market conditions for three years because demand is outstripping supply.

However, while the period of falling prices could be nearing its end and property values may begin to climb again, increases are likely to be small; economists do not believe we will see a return to the housing boom of a few years ago.

Nationwide reported a 0.2 percentage-point fall in property prices last month and the annual rate of house-price inflation slowed to 1.8% — its lowest since May 1996 and a sharp contrast to the double-digit growth seen for the last four years.

The average house price, now £166,074 according to Halifax, has doubled since the beginning of 2000, and many people have been priced out of the market. Affordability, coupled with last year’s interest-rate hikes, are the main factors which caused the rate of growth to slow, and even fall, in some areas.

In turn, this knocked confidence, and even those who could afford to buy were reluctant to do so in case the market collapsed. That now seems unlikely, which is why some buyers are returning. But even though wages are now increasing by more than the rate of house-price growth, affordability remains a problem for many first-time buyers.

Martin Ellis, chief economist at Halifax, said: “The reduction in economic growth this year and the high level of house prices in relation to earnings are expected to prevent a sustained surge in house prices.”

However, some economists warn that house prices could continue to fall. Ed Stansfield at Capital Economics, a consultancy, said: “The improved optimism may yet prove unfounded. We will need further evidence before we call the bottom of the market.”

Capital Economics thinks the improved CML lending figures may actually signal further price falls rather than rises.

Stansfield said: “Rather than signalling a revival in the housing market, it seems to us more likely that the sharp rise in mortgage approvals is the result of the stalemate between buyers and sellers beginning to unwind. This would be consistent with reports of falling asking prices and sellers increasingly resigning themselves to accepting offers below asking price. If this is correct, then the rise in mortgage approvals, rather than heralding higher house-price inflation, could be signalling the opposite.”

Capital Economics predicts that by the end of 2007, the average house price will be 20% lower than at the end of 2004.