Nationwide’s figures show that house prices are now up by just 3.9% on an annual basis and that the three month rate of change shows price stagnation over the summer.
Commenting on the figures Martin Gahbauer, Nationwide's chief economist, said: "House prices fell by 0.9% month-on-month (m/m) in August, following a decline of 0.5% m/m in July.
“This is the first time since February 2009 that house prices have fallen in two consecutive months. The 3 month on 3 month rate of change - generally a smoother indicator of the recent price trend - fell from 1.2% in July to 0.0% in August, suggesting that house prices have essentially stagnated over the summer.
“Unless house prices bounce back strongly in September, the three month rate of change will turn negative next month.
“The annual rate of inflation - which compares the current average price with the price level twelve months ago - remained in positive territory at 3.9%. However, it is down quite sharply from rates of 6.6% in July and 8.7% in June.
"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.
“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.”
Richard Hatch, head of residential at property consultancy, Carter Jonas, agrees. "Last year, there was a major disconnect between the property market and the economy,” he said. “House prices rose at a rate that was simply unsustainable and a degree of correction was always on the cards.
"An increase in the number of properties for sale, specifically at the lower end of the market, is diluting demand and seasonal factors will have added to that downward pressure in recent months.
"October's Spending Review and ongoing uncertainty in the economy are also dampening the enthusiasm of some prospective house buyers.
"Ongoing difficulties securing mortgage finance at higher LTVs are another factor reining prices in.
"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."
