Economic News

LONDON (ShareCast) - A sharp increase in the number of potential new buyers and lack of homes for sale has slowed the slump in house prices in England and Wales to a 1½ year low.

And in further evidence that the housing market may have bottomed out, the Department for Communities and Local Government (DCLG) says house prices rose 1.1% in April.

The Royal Institution of Chartered Surveyors' (Rics) monthly house price balance rose to -44.1 last month from -58.7 in April.

Today's figure is the strongest read since November 2007 and trumps predictions of a more modest improvement to -51.

New buyer enquiries were up for the seventh month in a row and at their fastest rate since August 1999, while the number of sellers continued to drop, now down every month for the past two years.

Estate agents had an average of just 58.4 properties on their books, a five-year low. But they also sold more properties in the three months to May, up to an average of 11.8 from 10.6 in the previous three months. That's the biggest monthly rise since April 2001 and the highest number since August last year.

"The survey also contains more definitive signs that the rebound in enquiries is now feeding through into increased transactions," Rics said.

The DCLG data, which showed the annual decline in prices eased to 13% from 13.6% in April, adds to hopes that things may be on the mend.

That news comes just a few weeks after Nationwide said prices jumped 1.2% in May, taking the annual decline down to 11.3% from 15% a month earlier, while last week's report from the Halifax showed an unexpected 2.6% rise in prices.

But while Rics said the housing market appears to be "bottoming out", it cautioned that rising unemployment and issues in the mortgage market could stifle a recovery.

"It is important to remember that the lack of supply has been as important in underpinning prices as the rise in demand," said Rics spokesman Ian Perry.

"Moreover, with the economic backdrop still quite uncertain, unemployment is set to continue increasing sharply and finance for first-time buyers is still in short supply, there are a number of significant obstacles for the market to overcome over the coming months."

Howard Archer, chief UK economist at IHS Global Insight, is also sceptical that we've seen the back of plunging prices.

"It is not uncommon for there to be months of rising prices when house prices are still trending down," Archer explains.

He still thinks prices will fall by another 10% from current levels to trough around mid-2010, but accepts this may be too pessimistic if the economy returns to growth soon and unemployment rises less than expected.