"Despite growing headwinds from the squeeze on household budgets due to high inflation and a steady increase in borrowing costs, the housing market has retained a surprising amount of momentum."
May saw a slight slowing in the rate of annual house price growth to 11.2%, from 12.1% in April. Prices rose by 0.9% month-on-month, after taking account of seasonal effects.
Robert Gardner, Nationwide's Chief Economist, said: “Despite growing headwinds from the squeeze on household budgets due to high inflation and a steady increase in borrowing costs, the housing market has retained a surprising amount of momentum. Demand is being supported by strong labour market conditions, where the unemployment rate has fallen towards 50-year lows, and with the number of job vacancies at a record high. At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices.
“We continue to expect the housing market to slow as the year progresses. Household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high. Measures of consumer confidence have already fallen towards record lows. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates."
Anna Clare Harper, director of real estate technology platform IMMO, commented: "May saw the tenth successive monthly increase, keeping house price growth in double digits.
"Many will be wondering why house prices remain so buoyant, in the context of post-Covid, post-Brexit and mid-Ukraine turmoil.
"Much like for the wider economy, house price inflation is being driven by shortages of supply. This shortage relates to housing in general, and to quality housing that people can afford, in the places they want and need to live, in particular.
"Suitable, affordable housing shortages are being made worse by planning backlogs from lockdown alongside labour and material shortages and inflationary pressures, alongside the fact that many new build schemes are unaffordable to locals."
Tomer Aboody, director of MT Finance, added: "Although there's a definite squeeze on people's purses due to the higher cost of living and inflation across the board, we are still seeing a strong housing market with higher prices supported by low interest rates, even though these are rising, and strong employment.
"With homeowners looking to improve their homes, disposal income is being used intelligently to add value and improve quality of life. This will be something to watch closely in coming months with higher costs of such works and inflation hitting homeowner budgets. This surely will have a knock-on effect on the out-of-control costs being charged by contractors."
