The increase in the CoreLogic measure of house prices in August, although barely half the average monthly gain of August 2012 and 2013, suggests that the housing market is putting the soft patch in prices from earlier this year behind it, a client note from Capital Economics says.

“Nevertheless, we doubt prices will continue to accelerate, and are expecting gains close to income growth over the next few years,” says property economist Paul Diggle.

The headline CoreLogic house price index rose by 0.3% month over month in August.

But house prices tend to be weaker in the second half of the year compared to the first half, meaning that their seasonal adjustment of the headline numbers points to a slightly higher underlying gain in prices of 0.5% month over month.

This was the strongest gain in five months.

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As has been the case for all but eight months out of the past four years, distressed home prices increased more rapidly than non-distressed prices in August – by 0.6% relative to 0.4% month over month.

That reflects strong demand for the dwindling stock of distressed and foreclosed homes.

“Despite the slight pick-up in August, we are not getting too excited about the outlook for house prices from here,” Diggle says.

For one, year-on-year price growth is still slowing – at 6.4% in August, it has reached a two-year low.

Statistically, annual price growth will slow so long as monthly gains remain below 0.8%.

“More fundamentally, despite a tightening in recent months, we expect housing market supply conditions to loosen over the next year,” Diggle says. “Earlier price gains are encouraging homeowners to bring their homes to the market, while the increase in housing completions means that the inventory of new homes for sale is expanding rapidly.

“And survey evidence indicating that would-be homebuyers are entering negotiations with an increased willingness to walk away if the price isn’t right suggests that sellers will not be able to force through much more in the way of price increases. With housing no longer obviously undervalued, we think that prices will do little more than rise in line with, or slightly above, incomes over the next few years,” he says.