City traders have started betting the property market has bottomed, a reversal of the downward trend that has lasted almost a year

The property derivatives market — where traders bet on what will happen to house prices — is still indicating a 44% fall in property values from peak to trough, more than even the most bearish economists.

However, that is not as bad as it was just a few weeks ago, according to broker Tullett Prebon.

At the beginning of February, the market was pricing in a 47% fall in the Halifax index — or a further 31% decline on top of the 16% so far. The market is now pricing in a smaller decline of 28% before a trough is predicted in 2011.

Rob Atkin of Tullett Prebon said: “The key to the rally is the emergence of one or two buyers who are willing to bet that the index will not fall as far as the market expected. This suggests we might be able to see the bottom.”

The bad news is derivatives markets predict that by 2019 prices will still not have recovered to today’s levels. There is, however, some uncertainty as to whether derivatives markets are an accurate forecasting tool — they are only three years old, so did not exist in the last downturn in the 1990s. It has also been argued the market is too small to provide a reliable picture.

Stephen Ashworth, who manages a commercial property derivatives fund for CB Richard Ellis/GFI, said: “The \ market doesn’t fall into the same category as something like foreign-exchange options, but is as good as you’ll get in terms of price direction.”

Atkin said: “The market is still quite new with a relatively small number of participants, but it’s a useful indication of the direction and level to which prices might move.”