House prices have recorded their biggest monthly rebound in more than two-and-a-half years, the Nationwide said.
Prices rose by a "surprising" 1.3% month-on-month in August to reach £164,729 on average, reversing declines recorded over the previous two months and marking the biggest monthly increase since January 2010, the building society said.
However, prices are still 0.7% lower than they were a year ago and the market remains volatile against the tough economic backdrop.
Recent house price studies have highlighted the difficult and unpredictable nature of the market, often with strong regional variations.
Property analyst Hometrack predicted earlier this week that prices will come under downward pressure for the rest of the year due to relatively weak buyer demand compared with the number of homes on the market.
Analysts have said they have seen little evidence so far that a recently launched funding for lending scheme by the Bank of England and the Treasury has done much to increase the availability of mortgages for people with lower deposits and first-time buyers, with the choice available shrinking back over the last six months.
The scheme has not stopped Nationwide and Santander announcing some increases to their mortgage rates.
In an indication of what is to come, Bank of England figures published on Thursday showed that mortgage approvals increased slightly in July compared with an 18-month low recorded in June.
Robert Gardner, Nationwide's chief economist, said: "Given the difficult economic backdrop, the extent of the rebound in August is a little surprising. However, we should never read too much into one month's data, especially since monthly price changes have been impacted by a number of one-off factors this year, such as the ending of the stamp duty holiday for first-time buyers."
He said the fact that the annual decline has slowed down from a 2.6% drop recorded in July provides some evidence that the market is "fairly stable". Mr Gardner said: "This may be explained by the surprising resilience evident in the UK labour market, with further increases in employment in recent months, even though the UK economy has remained in recession."