However, the building society found that cost of living pressures, higher interest rates and stagnant earnings are expected to contribute to a market slowdown.
Despite an almost double-digit price rise of 9.9%, when compared to the same period the previous year, this is the weakest annual price rise in Wales since early 2022 and points towards a more subdued outlook for the housing market in 2023.
This is echoed by a 1.3% increase when comparing against the quarter, one of the lowest rates since early 2020.
Principality says that this reinforces that the strong quarterly rate of house price inflation reported a year ago has dissipated considerably.
In the last quarter of the year, house prices reached new highs in 10 of the 22 local authorities, but for the first time in over two years, more local authorities reported quarterly price falls than increases.
Blaenau Gwent, Bridgend, Cardiff and Carmarthenshire were the only local authorities that reported consistent increases quarter-on-quarter through the whole of 2022 while Conwy posted just one quarterly increase, which was in the second quarter.
House prices in Anglesey have dropped by more than £50,000 from the all-time peak reported in Q3 2022.
The new average price for Anglesey of £254,046 is down 3% annually and 17.5% quarterly in Q4 due to the high average rise of 15.3% in Q3.
The report estimates there were about 12,600 transactions in Wales in Q4, a slight increase on the previous quarter, but around 5% lower than Q4 2021.
However, the building society says these figures may be due to buyers moving quickly to complete purchases while favourable mortgage deals were available.
For the year as a whole, sales are on par with levels in 2019, pre-Covid, but weaker than in 2021 by around 12%.
Much of the decline in sales relates to detached properties with a decline of 26% and semi-detached which were down by 12%.
Flats are the only property type with a higher volume of sales but only showed a 1% rise.
Principality suggests that affordability pressures are beginning to produce a greater demand for flats.
Principality Building Society head of distribution Shaun Middleton says: “Looking back at 2022, Wales has not suffered the more extreme price volatility seen in England. Typically, the housing market was more buoyant than expected partly because of the long-term issue of the shortage of the supply of homes, combined with pent-up demand.”
“Matters have improved since the tumultuous mini budget last September, with lenders returning to the market which increased competition and modestly reduced mortgage rates. It does appear that the era of exceptionally low mortgage rates is over.”
“Depending on trends in inflation and the actions of the Bank of England in terms of pushing up the base rate to counter that, we can expect mortgage rates to remain somewhat elevated for the foreseeable future.”
“Clearly, there will be a more challenging environment in 2023, with the higher cost of mortgages, rising cost-of-living pressures, plus a further fall in real earnings. These factors will contribute to a slowing market, with house prices widely predicted by analysts to drop slightly.”
“More than 1.4m households will be coming off much lower fixed-rate loans this year and some could face a payment shock, although the stress tests which have been in place over the last ten years should mean that most mortgaged households will have the capacity to cope with the increase.”