City traders are betting that the worst of the property market downturn is behind us, predicting house price falls of just 7% this year.

Brokers are urging buyers to snap up a bargain before mortgage rates and property values rise. Derivatives traders — who bet on what will happen to house prices — are predicting a 30% fall in values from peak to trough. As recently as February, a peak-to-trough fall of 44% was still expected. Prices have already fallen 19% on a non-seasonally-adjusted basis according to the Halifax house prices index and broker Tullett Prebon predicted another 11% fall before the market hits bottom.

Rob Atkin of Tullett Prebon said: “We’ve seen more buyers are willing to bet that the Halifax index will not fall as far as the market was suggesting three months ago. And with derivative prices suggesting the low point to be sometime next year, the worst may very well be behind us.”

Prices will trough in December 2010 and will not recover to today’s levels until 2016, markets suggest.

There is uncertainty as to whether derivatives markets are an accurate forecasting tool — they are only three years old, so did not exist in the last downturn in the 1990s, and it has been argued that the market is too small to provide a reliable picture. However, the markets chime with the more optimistic tone from many commentators.

Capital Economics, the consultancy, last week improved its forecast for the British housing market. It now expects prices to fall 10% this year, compared with a previous prediction of a 20% decline. It has also changed its forecast for 2010 from a fall of 10% to one of between 5% and 7%.

Ed Stansfield, one of its economists, said: “It seems likely that, from here on in, house prices will fall more slowly than they did last year. As for 2011, the outlook is even more uncertain. But the house-price-to-earnings ratio is still likely to be above its average over the long term.

“So, unless the recovery is strong enough to generate a rise in incomes, we would not rule out a further fall, of perhaps 5%, in nominal house prices.”

IHS Global Insight, another City forecaster, said its prediction for a 10% fall this year looked overly pessimistic, while George Buckley, economist at Deutsche Bank, also said the pace of declines expected this year could slow.

Another property derivatives trader, Tradition, last week published its Future House Price index, which showed derivatives markets now expected a 7.5% fall over the next 12 months — an improvement on the 12.5% fall forecast by the index last month.

The Money section revealed earlier this year that Lloyds Banking Group, the country’s biggest mortgage lender, thought prices could fall by only another 6% this year, while Ray Boulger of John Charcol, the mortgage broker, believes they could be rising by the end of the year.

Stephen Noakes of Lloyds said: “I think we will see about only 10% to 12% falls this year \. For the first time people are thinking that house prices will increase over the next 12 months.”