U.K. House Prices Reverse Decline

LONDON -- U.K. house prices posted their strongest monthly rise in six and a half years in May and there are indications activity in the residential property market may be stabilizing, mortgage lender Halifax said Thursday.

House prices rose 2.6% from April, the strongest gain since October 2002, but were still 16.3% below year-earlier levels, Halifax said. In April prices dropped 1.7% from March and 17.7% from a year earlier, Halifax -- which is owned by the Lloyds Banking Group PLC -- said. Economists were expecting a monthly decline of 0.6% and an annual drop of 17.2%.

The gain in the house-price indicator helped boost the pound against the dollar and weaken gilt prices as the market waited for a Bank of England policy decision later Thursday. The bank's Monetary Policy Committee is expected to leave interest rates unchanged at 0.5%.

"This latest Halifax reading is not an isolated case. There are clear signs emerging that the U.K. housing market has turned the corner," Alan Clarke, an economist at BNP Paribas, said in a note.

The positive data chime with other indicators that suggest the downturn in the U.K.'s housing market is beginning to bottom out after sharp drops in prices and interest rates. Nevertheless, with unemployment rising sharply, the outlook for demand and prices remains very uncertain.

"There are some tentative indications of a possible stabilization in activity, albeit at a low level," Nitesh Patel, housing economist at Halifax, said in a statement.

Last week, the Nationwide Building Society said house prices rose 1.2% in May, the strongest monthly gain by that measure in 19 months, although they remained 11.3% below their year-earlier level. The Royal Institution of Chartered Surveyors has also reported that increased buyer interest over the past six months is beginning to lead to an increase in sales.

Even though Mr. Patel noted that Bank of England data had shown that mortgage approvals, a good indicator of market activity, were 19% higher in the first quarter of the year than in the final three months of 2008, he cautioned against reading too much into one month's figures.

"House sales remain substantially below their long-term average and market conditions are expected to remain difficult, with housing activity continuing at low levels over the coming months," he said.