The latest Halifax House Price Index  was published yesterday showing an increase for the month of May of 2.60%. This follows on from both the Nationwide, which showed an increase of 1.20% for May and the land registry data which although always a month, behind showed prices essentially flat for April. It has been many months since all three main indices showed positive trends.

Given the low level of transactions and mortgage approvals, caution has been expressed from many analysts around putting too much store on one month’s figures. Whilst we agree with this approach, it also needs to be recognised that there is a trend emerging over the last few months of slowing price declines indicating to us that we could be at or near the bottom of the market. With all three main indices indicating similar trends rather than, as in the past, contrasting trends, it becomes difficult to argue that figures are perhaps in some way ‘suspect’.

Part of the caution around figures may perhaps stem from the reluctance of the main housing indices to make future predictions given that this either risks becomes a self-fulfilling prophecy (when house prices were falling) or they risk getting it badly wrong if for example prices are rising. Whilst it understandable to express caution around rising house prices given the low levels of transactions, the current data around house price rises are if anything probably more robust than the data that showed house prices falling in previous months as they are based on higher transactional volumes (albeit still low in an historical context). Any caution around low transactional figures has to work both ways, i.e. making the figures for last month as valid as the figures which showed them falling previously!

One of the few research firms who are prepared to provide forecasts and have (in our view) been generally quite historically accurate are Savills. Their latest report (from beginning of May) is well worth a read as it provides a good overview and supports our view that the recovery will be led from the prime markets of London and the South East. Indeed there is strong anecdotal evidence that the markets here are already in the process of recovery with increasing stories of sealed bids and the return of gazumping.  Even on a national Macro level there is strong evidence of stability returning to the market as the graph below indicates.

As we have iterated for over a year, property is now at its most affordable for a generation. Our view has always been that Q3 2009 would see (on a macro level) prices stabilise. This now looks less like a well informed prediction. We anticipate that there will be a period (particularly on a average national level) of ‘bumping along the bottom’, but affordability along with constrained supply (particularly in London and the South East and in the family housing sector) will prevent prices falling significantly further. From the bottom, the only way is up!