House prices rise 0.3% in May

National building society figures reveal ‘tepid bounce’ after falls in March and April

House prices experienced a “tepid bounce” in May, recording a 0.3% rise after falls in March and April, according to figures from National building society.

The modest rise in prices, which brought the average cost of a UK home to £166,022, followed drops of 1% in March and 0.3% in April. Annual figures showed prices are down by 0.7% year-on-year.

The society said prices were being supported by a lack of properties coming up for sale. Nationwide’s chief economist, Robert Gardner, said: “Demand for homes remains subdued on the back of weak labour market conditions, but the lack of homes coming on the market is providing support for prices.

“This is in part a reflection of the low rate of building in recent years which has failed to keep pace with household formation.” It added that house prices have remained fairly “stable” over the past 18 months, despite the tough economic backdrop.

Howard Archer, chief UK economist at IHS Global Insight, said: “The 0.3% month-on-month rise in house prices in May represents a tepid bounce after prices dropped 0.3% in April and 1% in March.

“We expect house prices to fall by around 3% by the end of 2012. Furthermore, the risk that house prices could fall even more than this is currently being lifted by the increased downside risks to the UK economic outlook, particularly coming from the problems in the eurozone centred on Greece and Spain.”

Nationwide’s study said house prices are still high relative to incomes, at more than five times the average earnings – well above the long-term average of four times earnings.

A recent spate of soaring rents, as those unable to get on to the property ladder have stayed in rented homes, also suggests demand for housing is stronger than supply, the report said.

Rents swallow up nearly 40% of earnings in London, where average house prices are more than six times earnings, while people in the south generally spend a bigger share of their income on housing than those in the north, the study said.

It continued: “This is important because it provides further evidence that housing more generally is in short supply, reinforcing the view that any efforts to reinvigorate the housing market should focus on the demand and supply side of the market.”

The Nationwide house price index began in 1952. Prices have increased almost 88 fold over this period, from an average £1,891, while the cost of goods and services has increased more slowly, showing a 25-fold rise.

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