House prices fall amid slowdown fears

House prices fell for the second month in a row during May as the property market continued to show signs of slowing down, figures revealed today.

The average cost of a UK home dropped by 0.4% during the month, following a 0.1% dip in April, according to Halifax.

The group said the current mixed pattern of monthly rises and falls was consistent with a slowing market.

It added that it was also in line with its view that house prices would be flat during 2010 as a whole.

The figures contrast with those reported by Nationwide for May, which showed a 0.5% rise in house prices following gains of 1.1% and 1% in April and March respectively.

But they are more in line with recent data from the Bank of England, which showed that the number of mortgages approved for house purchase had failed to recover significantly during April after a subdued start to the year.

Martin Ellis, Halifax housing economist, said: "The relative recovery in house prices in 2009 was driven by a boost to demand from reduced interest rates, combined with a lack of properties for sale.

"These factors have lost some momentum in recent months. Further falls in the number of people in employment are curbing housing demand, whilst the pick-up in market conditions last year has encouraged more homeowners to attempt to sell their property."

But despite the monthly drop in house prices, the annual rate at which they are growing continued to increase.

House prices were 6.9% higher during the three months to the end of May than they had been during the same period a year earlier - the highest rate since October 2007.

The average home now costs £167,570, 8.3% more than when prices reached their trough in April last year, although they are still 16% below their August 2007 peak.

Housing market activity had a subdued start to the year due to the end of the stamp duty holiday, the severe winter weather and uncertainty caused by the general election.

But economists have speculated that the drop in activity and its failure to pick up again significantly is due to more than these one-off factors, and indicates that the housing market recovery is running out of steam.

Many commentators expect house prices to be flat over 2010 as a whole.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The second successive drop in house prices reported by the Halifax in May further stokes our relative pessimism over the housing market and reinforces our belief that house prices will find it very difficult to make significant gains over the rest of this year."