U.K. May House Prices Unexpectedly Jump in Sign of Improvement

By Svenja O’Donnell

May 29 (Bloomberg) -- U.K. house prices unexpectedly jumped by 1.2 percent in May in a sign the property market slump is easing, Nationwide Building Society said.

The average cost of a home rose to 154,016 pounds ($245,701) after declining 0.3 percent in April, the mortgage lender said in a statement today. Economists predicted a drop of 0.9 percent, according to the median of 14 forecasts in a Bloomberg News survey.

Consumer confidence matched the highest level in 11 months in May as people became more optimistic that they can weather the recession, GfK NOP said in a separate report today. Prime Minister Gordon Brown’s government still predicts that Britain faces its worst recession since World War II this year as the mortgage squeeze extends the housing market’s slump.

The report is “further evidence of some improvement in housing market conditions over the last few months,” Martin Gahbauer, Nationwide’s chief economist, said in the statement. “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.”

Home values fell 11.3 percent from a year earlier in May, compared with a 15 percent drop in April, Nationwide said. Mortgage approvals rose in April, the British Bankers Association said earlier this week.

GfK’s index of sentiment stayed at minus 27 in May, the same as in April, which had the strongest reading in 11 months, the market researcher said in a statement.

Dearth of Property

A lack of supply of properties for sale on the market may help explain this month’s gains as home sales still remain close to record lows, Nationwide said.

Rising unemployment may still curb the housing market’s recovery. U.K. house prices may keep falling for the rest of this year as more Britons lose their jobs, Nationwide’s finance director, Mark Rennison, said on May 27.

“If the supply of homes onto the market does increase, the recent moderation in the pace of house price falls may not be sustained,” Nationwide’s Gahbauer said. “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.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.