House prices `still falling`

House prices still have further to fall despite mortgage approvals reaching a 12-month high in April, economists have warned.

Said Hetal Mehta at the Ernst & Young ITEM Club: "As unemployment continues to rise and acts as a drag on prospects, we are unlikely to see house prices recover in the short term. Indeed, approvals are still a long way from levels that indicate increasing prices."

And Howard Archer, at IHS Global Insight, says that approvals are still 22% lower than a year ago and less than half the 98,000 a month seen between 1993 and 2007.

Furthermore, he says, "despite steadily rising buyer interest, the pick-up in actual house purchases is likely to be be gradual and fitful for some time to come given still poor economic fundamentals and ongoing tight credit conditions."

The group expects house prices to fall by a further 10% to 12% before the bottom of the market is reached in 2010.

Meanwhile, the Bank of England reports that 43,201 mortgages were approved during the month, the third consecutive increase and the highest figure since April last year.

There was also an improvement in net mortgage lending, which strips out redemptions and repayments, with this rising from £640 million in March to £973 million in April.

The figures contribute to a recent run of positive data on the housing market, with Nationwide reporting a 1.2% jump in house prices during May, the second increase in three months.

There is also growing evidence that potential buyers are returning to the market on the back of record low interest rates and recent house price falls.

While most economists now agree that activity in the housing market has passed its low point, they have cautioned that it was too early to talk about a recovery.