In quarterly terms prices increased by 0.6% and they have now offset the fall in values recorded in April. The average price of a house is now £167,208.
‘Overall, the modest pace of house price growth in May suggests that the property market is continuing to mirror the lackluster trends evident in the wider economy. The UK economy returned to growth in the first three months of 2011, albeit at a modest pace, with business surveys suggesting that growth has been maintained in quarter two,’ said Robert Gardner, Nationwide's chief economist.
‘Employment has also edged up in recent months, and housing affordability, as measured by the house price to earnings ratio, is not as stretched as it was in the run up to the financial crisis,’ he explained.
‘Nevertheless, the modest improvement in economic conditions has so far been insufficient to pull the housing market out of its torpor, as the headwinds facing households remain strong. Despite recent increases in employment, household budgets remain under pressure, with debt levels still high and inflation rising almost twice as fast as wages,’ he added.
He also pointed out that although the house price to earnings ratio is well below the peak levels seen in 2007, it is still above its long term average.
‘While the outlook remains uncertain, sideways still appears the most likely trajectory for house prices over the remainder of the year. Economic conditions are expected to continue to improve as the year progresses, but the recovery is likely to remain weak compared with previous upturns,’ said Gardner.
‘The pattern of the recovery also argues against a strong bounce in property prices. Business investment and net trade are expected to drive the economy in the quarters ahead, rather than consumer spending,’ he explained.
‘This will eventually feed through to boost households and support the housing market by generating more rapid employment gains and stronger income growth, but it will take time for the feel good factor to emerge and for households to bolster their finances,’ he concluded.
