The annual rate of decline also improved sharply from -15.0% to -11.3%, according to the Nationwide. The average property price is now £154,016, up from £151,861 in April.
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.
“Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the 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, 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.
“The movement of house prices ultimately depends on the balance of demand and supply of houses on the market. One timely indicator of the supply-demand balance is the ratio of sales to unsold stock, published monthly by the Royal Institution of Chartered Surveyors. For most of 2008, this measure was on a steady declining trend, consistent with the acceleration of house price falls as the year progressed. Although it remains at a very low level by historical standards and continues to point to further house price declines, the ratio has recently stabilised somewhat and this probably explains some of the improvement in price trends over the last few months.
“If the supply of homes onto the market does increase, the recent moderation in the pace of house price falls may not be sustained. However, the ultimate outcome for prices depends as much on the development of demand as it does 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.”
David Smith, senior partner, property consultancy Carter Jonas, commented: "The rollercoaster ride for house prices continues. Up in March, down in April, back up in May. This volatility is typical of a housing market dragging along the bottom and mirrors the testing economic conditions. More importantly, the three month change, which rose from -3% in April to -0.5% in May, is further confirmation that prices are stabilising and is consistent with the increased activity we are seeing on the ground."
