Knight Frank/Markit’s latest House Price Sentiment Index (HPSI) shows that households ‘believe’ that average house prices fell for the 31st consecutive month in January. The index reflects buyer / seller confidence levels and is not based on any sold data, but on people’s ‘perceptions’ of what is happening to house prices in their region.

The proportion of homeowners reporting that the value of their home had risen was 7.7%, the same as in December, while 13% said the value of their home had fallen, compared to 14% last month.

This resulted in a HPSI reading of 47.6, matching the reading in November, and which together are the highest readings since July 2010, indicating that house prices fell more modestly during these months than any time over the last two and a half years.

Note - Any figure under 50 indicates that prices are falling, and the lower the figure, the steeper the decline. Any figure over 50 indicates that prices are rising.

The future HPSI which measures what households think will happen to the value of their property over the next year, rose this month, showing an increased confidence that house prices will rise modestly in 2013.

The overall index reading for the UK was 54.5, up from 53.1 in December. On a smoother three-month average, the future HPSI in January was 54.5, up from 53.2 in December and the highest since August 2010.

The number of regions expecting price rises this year has risen to eight, up from six in December. Londoners (65.5) once again lead the way, and expect the biggest lift in the value of their homes over the next 12 months, more than at any time since June 2010.

The North-South divide is evident to an extent as households in the South East (59.8) and the South West (55.9) are also very upbeat about the outlook for house prices. In contrast, those living in Wales (45.2), the North East (45.7) and Scotland (49.7) expect prices to fall.

Households in the North West (50.3), Yorkshire and the Humber (51.5), the East Midlands (51.5) and the West Midlands (50.8) all expect prices to remain stable or rise very modestly.

Those renting from private landlords (57.7) expect the biggest rise in prices over the next year, while those living rent free (50.0) are the most dubious about potential price rises.

Gráinne Gilmore, head of UK residential research at Knight Frank, said: “Households have started the New Year with optimism over the outlook for house prices in their area, shrugging off gloomy news over the economy which has emerged this week.

“There has been some good news from the housing market however, with a modest pick-up in mortgage lending and signs that mortgage rates are starting to recede, especially on deals available to those with modest deposits.