Investors attempting to unearth even a modicum of cheerful news have had their work cut out recently. Yet last month, the Halifax reported that house prices rose by an average of 1.9 per cent in January. One wonders whether this is a false dawn likely to entice adventurous buyers back into the market, or part of a fresh trend.

Of course, the ‘housing market’ is not an homogeneous one. There are massive differences in the extent to which property prices have fallen — a glut of new-build apartments in cities such as Manchester and Leeds have, according to recent auction results, slumped in value by up to 50 per cent. Meanwhile in Scotland, prices have barely moved, while the UK average is 18 per cent down.

Property values are notoriously volatile: they over-react, tending to overheat or plummet, rather than enjoy steady growth, or suffer a slow retraction.

We are undoubtedly still in a buyer’s market as, despite one per cent interest rates, the general perception is they will probably fall further. This feeling is reinforced by an increasingly important measure of house price affordability which shows property remains over-valued.

Between 1995-2007, UK property values rose by an average of 225 per cent, ensuring the ratio of house price affordability virtually doubled from its long-term statistical average. The ratio is a simple one: it divides average house prices by average UK earnings. In other words, it is a p/e measure for residential property.

In terms of ‘fundamentals’, or long-term averages, UK house prices look overvalued because while average property prices are currently £178,555, average incomes are £27,092. So the measure of house price affordability is 6.59, while the long-term average is 3.7.

Does this mean investors should simply shun property for the time being? Not quite, because property investors in residential housing use a completely different number to gauge the asset’s comparative attractiveness — the property’s net rental yield.

As housing values have fallen, it is noticeable that what might be considered ‘prime buy-to-let’ properties have dropped by only a fraction.

Why? Many property investors believe it is because their rental flow is as guaranteed as anything can be in the current market.

So where are these little gems? They are to be found in comparatively concentrated areas dotted around the UK’s leading universities, namely in areas where second and third-year university students want to live after they have completed their first year in halls of residence. Oxford is a prime example.

While net rental yields in areas that tenants consider less attractive are edging towards 10-11 per cent (because their rent is less likely to be guaranteed), properties located in prime buy-to-let pockets struggle to return 6.5 per cent. In most cases, they are nearer to 5.8 per cent.

Nonetheless, this compares favourably with the return on investment available from other assets, particularly as property investors can borrow up to 70 per cent of their mortgage requirement at fixed rates of 3.49 per cent, albeit that arrangement fees can be up to 3.5 per cent of the amount borrowed.

Assuming a prime unit yielding 6.5 per cent can be found, the arithmetic becomes tantalisingly attractive. Even taking account of property management fees of 12 per cent, wear-and-tear at ten per cent and the cost of an interest-only loan at 3.49 per cent, property investors borrowing 70 per cent can enjoy a return on capital employed in excess of 8.4 per cent.

There is also the longer-term prospect of capital growth — assuming the property market behaves as it has done for the past four decades and eventually bounces back, spectacularly, following a spell in the doldrums.

Unfortunately, there is no ratio which tells us how long the present period of depressed prices will last.