The latest RICS housing market survey paints a more optimistic picture of the housing market, with evidence that confidence and activity continue to improve.

The ‘new buyer enquiries' series (the balance of surveyors reporting an increase rather than a decrease in buyer interest) has been rising since November and, at 48 in May, it was the most positive response since August 1999.

This series acts as a good lead indicator of housing demand and suggests that, mortgage finance permitting, mortgage approvals could be reaching levels of 60 to 70,000 by the end of the summer.

In addition, average sales per surveyor increased for the second consecutive month and the ‘sales expectations' series jumped to its best level since the series began in 1998.

The changing sentiment in the housing market has also been evident in other data. The Bank of England's mortgage approvals data have edged up consistently for the past few months (admittedly from a very low level) and the Nationwide house price index has risen in two of the last three months, with the annual trend easing from -18% in February to -11% in May.

Even so, affordability on some measures still looks stretched and the RICS 'price expectations' series points to further falls in house prices over the next three months. So we're not getting too carried away with the good news - the next few months may continue to be challenging.

May's survey also highlighted that the housing market is being affected by very low levels of houses coming on to the market.

Potential vendors may be reluctant to sell into a weak market and some are choosing to bide their time by renting instead of selling their properties.

That limited supply is probably supporting house prices to some degree and, significantly, is constraining the number of transactions - something that has more often been attributed to tight credit conditions.

In truth, it seems that both are impeding a return to a normally functioning market.

In the longer term, the undersupply problems may be exacerbated by low levels of housebuilding.

According to recent figures from the Communities and Local Government department, housing starts edged up between 2008Q4 and 2009Q1.

But, at 18,300, they were still about 45% lower than 12 months earlier and it's hardly evidence of a start to the recovery.

Housebuilding may be constrained by a pessimistic outlook and financing constraints, amongst other factors. A steady improvement in housebuilding activity will be vital to establish a vibrant and sustainable housing market in the future.