House prices drop by 0.6%

House of £20 notes

August house prices have fallen by 0.6%, according to the latest Nationwide house price index.

The average house price now stands at £165,914 compared to £168,731 in July.

The drop contrasts with July's 0.3% rise.

Sluggish demand

However, Nationwide's chief economist Robert Gardner don't think it will have much impact.

"This doesn't change the overall picture of relative stability that has characterised the market over the past 12 months."
Annual prices have only minimally changed, with a 0.4% drop compared with August 2010.

"Sluggish demand for homes combined with only a gradual rise in the supply of available properties, has helped to keep property prices stable since last summer," adds Gardner.

He expects prices to stay stable for the rest of the year, but admits that the risk of bigger house price drops has increased due to stalling world economic growth, US debt woes and the eurozone crisis.

"Against this backdrop we continue to expect house prices to move sideways, or drift modestly lower over the remainder of 2011, although we recognise that the downside risks have increased."

Unrealistic house prices damaging housing market

Rental market surging

In contrast with the lack of activity in the housing market, the rental market is unable to keep up with demand.

According to the latest monthly Royal Institution of Chartered Surveyors (RICS) residential lettings survey, demand for rented properties outstrips supply. As a result, 34% of its surveyors have reported a rise in rental prices.

James Scott-Lee, spokesperson for RICS, says limited mortgage finance for first-time buyers will mean increased rents are an inevitability:

"The combination of strong tenant demand and a limited stock of good quality properties on offer is pushing rents ever higher across much of the country. This is the case both for houses and flats."