The UK House market is showing signs of activity with growth of 1.2% in asking prices between April and May according to the latest data from the Nationwide Building Society.

Despite the rise in prices, Nationwide has said it is still too early to say that the house market is turning definitively. During the downturn of the early 1990s, there were many months during which prices rose, only to fall back down again in subsequent periods. In the current downturn, the combination of rapidly rising unemployment and tight access to credit implies that the last of the price declines has probably not been seen yet.

Nonetheless, Nationwide feels the improvement in house price trends is consistent with signs of stabilisation in several other economic indicators and suggests that any further price declines may occur at a less rapid pace than in 2008.

Main Points
- House prices rose by 1.2% in May
- Annual rate of decline improves sharply from -15.0% to -11.3%
- Low supply levels may explain some of the improvement in price trends

House prices
May’s increase of 1.2% means that the UK’s average asking price rose by £2155 to £154,016. While good news for sellers, in context, it’s a low figure with asking prices now -11.3% than this time last year.

Another element helping the growth in house prices is the falling numbers of housing stock becoming available on the house market. Potential sellers are likely to be holding off putting their homes for sale until house prices show more solid signs of recovery. Likewise, the lack of new homes being built will have an impact on asking prices. Another element is that many potential sellers have turned to renting out their properties for the moment, having an effect of lowering rent prices, but in the short term, increasing asking prices for home sales.

However, if the supply of homes onto the market does increase, the recent moderation in the pace of house price falls may not be sustained. Nationwide feels that the ultimate outcome for house prices depends as much on the development of demand as itdoes on supply dynamics. Survey evidence suggests that buyer interest has picked up strongly in response to lower prices and lower interest rates. If this buyer interest translates into actual sales and outweighs any potential increases in supply, then the recent moderation in price falls may continue. For the moment, however, it is unclear how the balance between supply and
demand will ultimately work through in the coming months.

Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said: “The price of a typical house rose by 1.2% in May, providing further evidence of some improvement in housing market conditions over the last few months. At £154,016, the average house price is still 11.3% lower than a year ago, although this marks a significant improvement from the annual decline of 15.0% recorded in April.

The 3 month on 3 month rate of change – a smoother indicator of short-term price trends – rose from -3.0% in April to -0.5% in May and now stands at its highest level since January 2008.”