House prices fell for the second month in a row in August, according to the Nationwide building society.
Prices fell 0.9% last month, following a 0.5% decline in July, Nationwide said, adding that it was the first time that prices had fallen for two consecutive months since February 2009.
The average house price now stands at just over £166,500.
Nationwide said house prices had “essentially stagnated over the summer”.
The quarter-on-quarter rate of change – generally seen as a smoother indicator of recent price trends – fell from 1.2% in July to 0% in August.
“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,” said Martin Gahbauer, Nationwide’s chief economist.
But he added: “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.”
The annual rate of house price inflation fell sharply from 6.6% in July to 3.9% in August.
Mr Gahbauer said that more sellers had returned to the market, giving buyers more choice and more bargaining power.
Others in the industry suggest that the market had been accelerating at the end of last year, despite the economic downturn.
“There was a major disconnect between the property market and the economy. House prices rose at a rate that was simply unsustainable and a degree of correction was always on the cards,” said Richard Hatch, of property consultancy Carter Jonas.
“At the higher end, however, prices are proving far more resilient and demand continues to be strong, more evidence of the formation of a two-tier market.
“We do not expect two months of consecutive declines to be the beginning of a sharper downward price trend. The market is simply readjusting after getting ahead of itself. The market is stabilising, not collapsing.” Although falling prices would be welcomed by first-time buyers, their attempts at getting on the property ladder are being challenged at present by large deposits being demanded by lenders.
Howard Archer, chief economist at IHS Global Insight, said he expected prices to fall by between 3% and 5% in the second half of 2010, followed by a 5% drop next year.