Nationwide Building Society said its measure of home values rose 0.5% last month after a 0.7% drop in March, the first increase since August. Economists had expected declines to continue, and the March figure wasn’t quite as bleak as previously estimated.
“There were tentative signs of a recovery,” Nationwide’s chief economist Robert Gardner said in a statement Tuesday. “In recent months industry data on mortgage applications point to signs of a pickup.”
The figures open the prospect that house prices may not slump by 10% or more as economists have warned. Soaring inflation and interest rates have strained the affordability of new homes, but a lack of supply of properties coming to market has helped keep prices buoyant.
The annual pace of declines eased to 2.7% last month from 3.1% in March. That put the average value of a home at £260,441 (US$325,500), or about 4% below its peak in August.
Supporting the market is a steady decline in mortgage rates since they spiralled to 14-year highs last year. As of last week, the average two- and five-year fixed-rate deals were down to 5.24% and 4.96%, respectively, according to Moneyfacts Group Plc.
“Mortgage interest rates are also likely to act as a headwind,” Gardner said. “While they are well below the highs seen in the wake of the mini-budget last year, rates are still more than double the level prevailing a year ago.”
The figures chime with readings from other surveys indicating signs of strength in the housing market. Halifax has reported that prices based on its loan book have been rising for three months, reversing some of the declines it showed at the end of 2022.
Property surveyors for the first time in a year are anticipating sales will increase, and their outlook for prices is at the strongest it’s been since September, according to the Royal Institution for Chartered Surveyors.
Investors anticipate the BOE’s tightening cycle has further to run, which may weigh on property prices in the months ahead. Money markets are fully pricing in another quarter-point increase in the base rate to 4.5% on May 11 and a peak of almost 5% in September.
“General economic conditions in the year ahead, have both improved markedly in recent months,” Gardner said. “If inflation falls sharply in the second half of the year, as most analysts expect, this would likely further bolster sentiment. This, in turn, would also be likely to support a modest recovery in housing market activity.”