House prices rose 0.3% in January and 4.8% over 12 months, and worsening supply shortages look set to drive the market to new highs.
Positive economic news and rising levels of employment should boost market sentiment in the coming months, according to the latest national monthly housing survey from residential property analysts Hometrack.
Property shortages are getting worse, with the supply of homes for sale down 6.6% in January.
This is the fifth consecutive monthly decline, during which supply has fallen by a total of 17%.
The balance between supply and demand is now at its widest level since 2009.
January's growth rate was the lowest for six months, however, largely due to seasonal factors.
UK prices still rose 4.8% over the 12 months to January, up from 4.4% in December.
Rises have been driven by increased activity from first-time buyers and investors, who now account for up to 40% of all sales.
This erodes supply more quickly, as these buyers don't have a property of their own to sell.
Supply will only improve if more existing home-owners putting their property on the market, investors bank recent price gains or the number of new-builds rises strongly, Hometrack said.
But if sellers remain slow or reluctant to enter the market, because they expect further price gains, the pressure on prices will build rapidly once again.
London (0.6%), the South West (0.4%) and East Anglia (0.4%) registered the strongest gains in January. No regions reported any price fall over the month.
The average property was on the market for eight weeks, down from 10 weeks in January 2013.
The discount to asking prices has narrowed from 7% a year ago to less than 5% today.
Hometrack director of research Richard Donnell said: "Despite the lowest monthly increase in house prices since July 2013, underlying market conditions remain strong with the market starting 2014 in a better position than a year ago.
"While London has been the engine for house price growth, the survey shows the rate of growth increasing in other markets as confidence spreads.
"Dorset (0.9%), Cambridgeshire (0.7%), Northamptonshire (0.7%), Devon (0.6%) and Essex (0.6%) all registered above average growth in January."
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