Thursday, 31 May 2012 8:40 AM
House prices rose 0.3 per cent in May but the trend remains gently downwards, according to the Nationwide.
The monthly figure in the building society’s house price index contrasts with a 0.3 per cent fall in April.
However, on a three month basis the decline accelerated to -0.9 per cent. And compared to a year ago prices are 0.7 per cent lower at an average of £166,022.
The Nationwide said prices had been a fairly stable picture for the last 18 months despite a challenging economic backdrop.
Robert Gardner, chief economist, said: "Demand for homes remains subdued on the back of weak labour market conditions, but the lack of homes coming onto the market is providing support for prices. This is in part a reflection of the low rate of building in recent years which has failed to keep pace with household formation."
The constrained supply is reflected in the fact that house prices currently stand at more than five times average earnings, well above the long-term average of four times.
However, record low interest rates mean mortgage payments account for around 31 per cent of take-home pay, the lowest level for a decade.
Gardner said: "Upward pressure on rents also suggests that demand for housing is outstripping the available supply. As the chart over the page illustrates, rental growth tends to track pay growth fairly closely over time. However, rental growth is now outpacing wage growth by a significant margin."
London is by far the least affordable region, with rent taking up almost 40 per cent of earnings and average prices more than six times earnings.
The Nationwide first published its index in 1952, the year of the coronation, and house prices have increased almost 88 times in the 60 years since then while the costs of goods and services is up just 25 times.