"Low interest rates are expected to help underpin demand while a shortage of homes on the market will continue to provide support for house prices."
Nationwide predicts house price growth to slow to around 2% in 2017, but says "house price prospects will depend crucially on developments in the wider economy".
Robert Gardner, Nationwide’s Chief Economist, says a small gain is more likely than a decline over 2017 as a whole, "since low interest rates are expected to help underpin demand while a shortage of homes on the market will continue to provide support for house prices".
Nationwide also believes that economic uncertainty could weigh on housebuilding activity in the year ahead, despite builders having the capacity to expand output.
Its data shows that house price growth remained in a fairly narrow range between 4% and 6% throughout 2016 in line with its expectations, and only slightly above the 3-4% it would expect to prevail over the longer term.
Gardner says a number of policy changes such as additional stamp duty on second homes, as well as the result of the Brexit vote, made it difficult to gauge the underlying strength of housing demand for much of 2016.
Yet he believes the fundamentals underpinning housing demand remained solid due to robust labour market conditions, strong employment growth, healthy gains in real wages (thanks in part to low inflation) and borrowing costs falling to new record lows.
Gardner continued: “The relative stability in the rate of house price growth throughout 2016 suggests that softening in housing demand that we saw through the summer months was broadly matched on the supply side of the market.
“Survey data indicates that, while new buyer enquiries have remained fairly subdued, the number of homes on the market has remained close to all-time lows, in part due to low rates of construction activity. In fact, the number of new homes built in England has picked up, but is not sufficient to keep up with the expected increase in the population."