House prices fell 1.7% in May from the previous month, the largest monthly fall for 11 years, according to the Nationwide.
Annual house price growth halved from 3.7% to 1.8%, as the coronavirus crisis hit market activity.
The latest HMRC data showed that residential property transactions fell 53% in April compared with 2019.
“The medium-term outlook for the housing market remains highly uncertain,” the Nationwide warned.
“We have already seen a sharp economic contraction as a result of the necessary measures adopted to suppress the spread of the virus,” said Robert Gardner, Nationwide’s chief economist.
But he pointed out that the raft of policies adopted to support the economy should “set the stage for a rebound once the shock passes” and help limit long-term damage.
“These same measures should also help ensure the impact on the housing market will ultimately be less than would normally be associated with an economic shock of this magnitude,” he predicted.
The figures are based on Nationwide’s lending data, do not include cash purchases, and may have a greater volatility owing to the very low levels of activity.
Yet, the big month-to-month drop in Nationwide’s house price index in May – the largest since February 2009 – “is just the start of a protracted decline over the remainder of this year,” warned Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Before the pandemic struck the UK, the housing market had been steadily gathering momentum, the Nationwide said.
Activity levels and price growth were edging up thanks to continued robust labour market conditions, low borrowing costs and a more stable political backdrop following the general election.
“Behavioural changes and social distancing are likely to impact the flow of housing transactions for some time,” Mr Gardner said.
This article was originally posted on finance.yahoo.com/news/.