Robert Gardner, Nationwide's Chief Economist, said:
“House prices increased by 0.3% in May, only just offsetting the 0.2% fall recorded the previous month, and leaving prices 1.2% below the level prevailing in May 2010.
“At 0.6%, the three month on three month measure of house prices was little changed from the 0.7% pace of increase recorded in April. Overall, the modest pace of house price growth in May suggests that the property market is continuing to mirror the lacklustre trends evident in the wider economy.
Economic outlook still cloudy, but starting to brighten
“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 Q2. 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.
“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. Although the house price to earnings ratio is well below the peak levels seen in 2007, it is still above its long-term average.
Where next?
“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.
“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.
“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.”
Simon Rubinsohn, RICS Chief Economist, said:
"The Nationwide data on house prices released this morning provides further evidence of a largely stagnant residential market. This follows on from numbers on the level of transactions published earlier in the week by the HMRC and the BBA, both of which showed a broadly flat trend in sales.
"Meanwhile the forward looking indicators from the last RICS Housing Market Survey suggest that there is little reason to expect an improvement in turnover in the near term.
"A combination of factors including uncertainty over the outlook for the economy and an ongoing reluctance from the banks to make finance more readily is continuing to cast a pall over the sales market.
"This would matter less if the availability of rental property, whether privately let or social, was increasing. The upward pressure on rents is a clear indication that this is not the case. Indeed, reforms to financing arrangements for social housing raises significant doubts as to whether new provision can keep pace with need.
"Although the mood music in government does seem to have shifted more in favour of development in recent months, it is absolutely critical that the rhetoric feeds through into actions. Failure to act is likely to result in the cost of all tenures of housing continuing to rise."
Nick Hopkinson, Director of property company, PPR Estates, said:
“House prices are still falling in real terms by at least 5% this year so far when you factor in inflation. I fear that real house prices will continue falling while the austerity cuts and household incomes continue to come under pressure till at least 2012.
"Any growth this month in the pricing data from Nationwide is simply correcting falls last month at best and are therefore no real comfort to potential sellers.
"The monthly lending statistics from one lender are currently based on such a small number of transactions as to not be reliable in terms of extrapolating any meaningful trend insights.
“It’s also quite possible that any recent growth in lending by Nationwide is more a reflection of tighter credit criteria being applied and therefore loans being made to more affluent clients buying bigger properties rather than any overall increase in house prices.
"Most buyers are still struggling to get realistic finance and the necessary deposits are still unobtainable for many.
"The impact of the Credit Crunch and austerity Britain has many more months and possibly years to run before we will see any sustained house price recovery, when you look behind the advertising headline statistics on house prices of the major lenders.”
