Industry News

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House prices rose by 1.2% in May as the annual rate of decline improved dramatically, raising hopes of a recovery in the property market.

The latest jump lifted average prices to £154,016, pushing the annual rate at which property values are falling to 11.3% from 15% in April, according to Nationwide.

The building society warned it was too early to call an end to the house price correction, but added that conditions in the market had improved.

Martin Gahbauer, Nationwide's chief economist, said: "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."

But he added that the improvement in house price trends suggested further price declines may occur at a less rapid pace than in 2008.

The quarter-on-quarter rate of change - generally seen as more stable indicator of price trends - also improved significantly.

Figures showed falls of 3% during the three months to the end of April had narrowed to declines of just 0.5% during the three months to the end of May.

Nationwide said the recent improvement in prices was likely to have been caused by a shortage of homes on the market.

This has come about from a combination of lower building levels and sellers either delaying putting their home on the market or opting to rent it out instead.

At the same time, estate agents have been reporting an influx of potential buyers as historically low interest rates and recent house price falls tempt people back into the market.