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Signs pointing the way to recovery in the housing market appear to have veered off course with new research showing another sharp price drop.

The average price of a new home fell by 2.3% in May 2009, following the two increases recorded over the three previous months, according to SmartNewHomes.com.

The monthly drop resulted in the largest year-on-year decline so far recorded in the new homes market, taking annual growth below -15%.

However, the price of detached homes increased for the third month running, indicating a growing lack of supply and continued demand for this property type.

SmartNewHomes Managing Director David Bexon said: "While many of the UK house price indices are now starting to show monthly rises, it is likely to be a little while before we return to sustained price growth across the board. I do believe that the bottom is now being reached in the new homes market, and that the monthly volatility in average prices we are now witnessing is indicative of this correction.

"Developers are under pressure to secure sales, so asking prices for new-build homes are unlikely to head upwards as rapidly as they have done with re-sale properties, as buyers return to the market. Instead, new home prices are expected to remain at a modest level that will realistically achieve a sale.

"Homebuyer confidence is increasing, as prices show signs of firming and some competitive mortgage deals for first-time buyers start to come through. This is reflected in demand price (the price buyers are willing to pay), which stopped falling in February and showed a slight increase in May.

"Buyers are aware that they can still secure very competitive prices in the new homes market, as well as taking advantage of a range of incentives that are unavailable with re-sale property.

"They are also willing to pay a premium for the potential cost-saving of new build. One-in-two of the homebuyers questioned in the SmartNewHomes.com National Homebuyer Survey in May, stated the low maintenance of newbuild properties as their reason for buying new.

"Over 40% of respondents also cited the peace of mind offered by the standard ten year newbuild warranty as another key reason for choosing new over re-sale homes."

Apartments were particularly hard-hit last month.

"Apartments suffered a major monthly decline in May, with annual growth falling to -20%," Bexon said. "Despite an increasing interest in starter homes, first-time buyers are largely on the lookout for shared equity deals, which are limited in number and becoming very oversubscribed. Developers still have a relatively large amount of apartment stock available, and while properties in the best, city-centre locations are being snapped up at current prices, a degree of adjustment is still required in many parts of the country.

"While the current price and availability of apartments makes it an excellent time for first-time buyers to get on the ladder, there is a lot of concern over the supply and affordability of family homes. Detached and terraced properties have been reported by developers as being in the highest demand, but the number of these homes coming to the market is falling considerably,due to the stretched finances of developers and the Government’s failure to assist production. Prices for new detached homes increased for the third consecutive month in May."

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