The outlook for the battered property market remains bleak despite the 1.2 per cent house price rise in May that was revealed by the Nationwide building society yesterday.
The wider pace of decline is slowing, with a drop of just 0.5 per cent over the past three months, the slowest rate since January 2008. And although the average selling price of £154,016 is still more than 11 per cent lower than a year ago, that is a major improvement on the yearly decline of 15 per cent recorded in April. But there are further falls to come. Martin Gahbauer, the chief economist at the Nationwide, 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."
Part of the recent rises can be accounted for by reduced supply. Potential sellers are renting out their properties rather than attempting to sell in a depressed market, and fewer houses are being built as homebuilders struggle with collapsing demand.
Demand will also be hit harder as the recession in the real economy starts to filter through. Rising unemployment, continuing difficulties accessing credit and feeble consumer confidence will keep a downward pressure on prices.
Although falls may slow, prices will drop by another 12 per cent before bottoming out in the middle of next year, according to IHS Global Insight. Howard Archer, the chief economist at IHS Global Insight, said: "The pick-up in activity will be both gradual and fitful for an extended period. Sharply higher unemployment, muted wage growth and an unwillingness to commit to buying a house when worried about the outlook are all factors likely to continue to weigh down on the housing market for some time to come."Reuse content