Property prices in the UK fell by 0.9% during August as the housing market continued to show signs of weakening, figures revealed today.
The latest drop follows a slide of 0.5% in July, and is the first time that house prices have dropped for two consecutive months since February 2009, according to Nationwide.
The annual rate of change also weakened for the fourth consecutive month to stand at 3.9%, the lowest year-on-year rise since November last year.
The gloomy figures come just days after economists warned that the housing market could be heading for a double dip.
Figures from the Bank of England released earlier this week showed that only 48,722 mortgages were approved for house purchase during July, a level that economists consider to be consistent with house price falls.
Nationwide said the quarter-on-quarter growth rate, generally seen as a smoother indicator of market trends, had fallen to 0% during the three months to the end of August, suggesting that house prices had stagnated during the summer.
It warned that unless house prices bounced back strongly in September, the quarterly growth rate was likely to turn negative next month.
Martin Gahbauer, Nationwide’s chief economist, said: “Recent market trends remain consistent with an unwinding of the supply-demand imbalance that drove up prices for much of the last year.
“As more sellers have returned to the market, buyers have a greater selection of properties to choose from and more bargaining power with which to bid down asking prices.”
But he added that there was little evidence of distressed selling, with the number of homes that were repossessed falling during the second quarter.
He said: “As such, the current period of price declines is likely to remain relatively modest.
“Given that the price increases of the last year had gotten ahead of the recovery in the wider economy, the current correction is not an unhealthy development.”
But the latest report of house price falls is likely to do little to improve confidence among potential buyers, many of whom have adopted a ’wait and see approach’ due to concerns about the state of the economy, job security and the impact of future tax rises.
The ongoing lack of mortgage finance is also holding back the market, as lenders continue to demand high deposits for their most competitive deals.
Economists are divided on how far they expect house prices to fall, with some predicting drops of only 3% to 5% before the market stabilises again, while other expect property to lose around 25% of its value between the beginning of this year and the end of 2012.
The average home currently costs £169,347, according to Nationwide.