US house prices showed their first monthly gain in three years in May, offering another strong sign the stricken residential real estate market is stabilising.

Home prices unexpectedly climbed by 0.5 per cent from April to May, but were off by 17.1 per cent year-on-year, according to the closely watched Case-Shiller index, published yesterday. The monthly rise was the first since prices peaked in July 2006, while the annual drop marked the fourth consecutive month that the rate of decline slowed after 16 consecutive months of record falls.

“To put it in perspective, these are the first times we have seen broad increases in home prices in 34 months,” said David Blitzer, chairman of the index committee at Standard and Poor's, which publishes the Case-Shiller results. “This could be an indication that home-price declines are finally stabilising.”