House prices rose by 1.2 per cent during May as buyers continued to return to the market, figures showed today.
It is the second time in three months that house prices have risen, with the cost of property also increasing by 1 per cent in March, while a fall of just 0.3 per cent was recorded in April, according to Nationwide Building Society.
The latest jump pushed average prices up to £154,016, and caused the annual rate at which property values are falling to slow sharply from 15 per cent to 11.3 per cent.
But Nationwide warned it was too early to call an end to the house price correction, although it added that conditions in the market had improved during the past few months.
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, which is generally seen as a less volatile indicator of price trends, improved from falls of 3 per cent during the three months to the end of April, to ones of just 0.5 per cent during the three months to the end of May - the lowest level since January last year.
Nationwide said the recent improvement in prices was likely to have been caused by a shortage of homes on the market, due to 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.
Mr Gahbauer said: "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."
He said if recent buyer interest translated into sales and this outweighed any potential increases in supply, the recent moderation in price falls may continue.
There has been a raft of positive data on the housing market in recent weeks, with both transaction levels and mortgage approvals for house purchase increasing.
But the Council of Mortgage Lenders reported a 9 per cent fall in mortgage advances during April, prompting economists to warn that any recovery was likely to be gradual.
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