House prices lost further ground in August as the supply-demand imbalance that drove up prices for much of last year continues to unwind.
The latest survey from Nationwide revealed a 0.9% month-on-month fall in property prices following a 0.5% drop in July.
This is the first time since February 2009 that house prices have fallen in two consecutive months and take the price of the average property to £166,507.
Martin Gahbauer, Nationwide's chief economist, says: “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.
“There is little evidence of distressed selling, however, with the Council of Mortgage Lenders' second quarter figures showing another drop in mortgage arrears and possessions. 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.”
Howard Archer, chief UK economist at IHS Global Insight, adds that high unemployment and muted wage growth are still taking their toll with credit conditions remaining tight and making it hard for many people to get mortgages.
Although he believes that a sharp correction in house prices is unlikely, further falls could well on the cards.
“The recent overall tone of housing market data and surveys has been consistently downbeat. We currently expect house prices to fall by 3% over the second half of the year, but there is a now a very real likelihood that the drop will be nearer 5%,” he says.