Property sector signals recovery

The housing market appeared in good form during May as increased demand from potential buyers and a shortage of homes for sale helped to boost the sector, research has shown.

The Royal Institution of Chartered Surveyors (Rics) said interest from new buyers reached its highest level since August 1999 after increasing for the seventh month in a row during May.

And there was a rise in the average number of properties sold by estate agents during the three months to the end of May, from 10.6 in the previous quarter up to 11.8.

The balance of surveyors reporting price falls rather than price rises also dropped from 58.7% to 44.1% as a lack of supply combined with the increase in demand helped to provide some support for house values.

And the percentage of surveyors expecting to see further price falls going forward, compared with those who thought there would be rises was at its lowest level since July 2007 when the housing market correction first began, standing at just 11%.

At the same time, 40% more surveyors expect sales levels to rise in the coming months, the highest level since the question was first asked in 1998.

The Rics survey is the latest in a run of positive data on the housing market, with both Nationwide and Halifax reporting price rises during May of 1.2% and 2.6% respectively.

But despite rising sales and increasing numbers of mortgages being approved for house purchase, economists have warned that any recovery in the housing market is likely to be constrained by rising unemployment and the ongoing problems in the mortgage market.

Rics spokesman Ian Perry said: "On the face of it, the housing market does appear to be close to bottoming out with activity picking up in a material way and prices at last stabilising.

"However it is important to remember that the lack of supply has been as important in underpinning prices as the rise in demand.

"Moreover, with the economic backdrop still quite uncertain, unemployment is set to continue increasing sharply and finance for first-time buyers is still in short supply, there are a number of significant obstacles for the market to overcome over the coming months."