The May Royal Institute of Chartered Surveyors (RICS) survey signals a rebound in housing market turnover following weakness related to the ending of the previous stamp duty holiday (since extended) and the election. The net percentage of agents expecting an increase in sales rose to an eleven-month high, probably presaging a pick-up in mortgage approvals – see first chart.

Despite a recent increase in sales instructions, stock levels are the lowest since November. The new buyer enquiries and prices balances remain positive, the latter at levels historically consistent with solid gains – second chart.

At least until official interest rates rise significantly, real house prices may continue to follow the pattern of the early 1980s recovery, implying increases of 4% and 7% (Nationwide measure) respectively in the years to the fourth quarters of 2010 and 2011 – see third chart and previous post for more discussion. Assuming, conservatively, 3% retail price inflation, this would entail nominal growth of 7% and 10%, resulting in prices regaining their 2007 peak by late 2011.

Such a scenario could be upset by harsher tax treatment of housing but the coalition will be brave to grasp this nettle – the consensus is that any rise in capital gains tax on second homes and buy-to-let investments in next week's Budget will be vitiated by generous taper relief.