Property research company Hometrack said prices were 3.7% lower in May compared with a year ago, the biggest decline since October 2009. On the month, prices nudged 0.1% lower after April's unchanged reading.
Hometrack blamed the decline on flagging consumer morale, public holidays and people taking Easter breaks that ran on into May.
“The late Easter break and May bank holidays reduced the volume of traffic through agents' offices,” said Hometrack research director Richard Donnell. “But of greater significance is the growing evidence of weakening consumer confidence.”
Economists expect high inflation, weak wage growth, tax rises and public spending cuts to weigh on consumer spending and house prices this year, despite record low interest rates.
One survey released on May 27 suggested consumer morale may not be as bad as many feared.
The GfK NOP measure showed its biggest rise in almost 20 years in May, although analysts said it might have received a temporary boost from unusually fine weather, the royal wedding and a run of public holidays.
The Hometrack survey showed that the number of new buyers registered with estate agents fell by 0.5% in May, the first decline since January.
The number of sales agreed rose by 1.6% in May, lower than the 8% jump seen in April and March's 12.6% rise.
London continued to buck the national trend, with prices up by 0.2% on the month.
Hometrack said it expected lower demand to keep pressure on national house prices over the rest of the year.
“With concern over household finances and the wider economic outlook, demand for housing is likely to continue to post further modest declines over the summer,” Donnell said.
By Reuters
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