House prices fell 0.6% in August compared with the previous month, according to the latest Nationwide house price index.
The average house was worth £165,914 in August, down from £168,731 in July and 0.4% lower than in August 2010.
Robert Gardner, chief economist at Nationwide, says although house prices fell 0.6% in August, it does not change the picture of relative stability that has characterised the market over the past year.
He says: “Sluggish demand for homes combined with only a gradual rise in the supply of available properties, has helped keep property prices stable since last summer.
“We expect this trend to be maintained over the rest of 2011, although the downside risks have increased as UK and global growth prospects have weakened.”
He adds that a further fall in employment would be likely to upset the delicate demand-supply balance and put downward pressure on prices.
Paul Hunt, managing director of Phoebus Software, says a drop of 0.6% in prices may be disconcerting but the subdued state of the mortgage market makes it difficult to draw firm conclusions from Nationwide’s data.
He says: “With 9% of market share, Nationwide’s sample size is only 4,000, which partly explains the volatility of its numbers.
“What’s more, areas where house price growth is fastest are being driven primarily by cash buyers, who are not factored into Nationwide’s numbers.”
He says the reality is probably less gloomy than Nationwide suggests.
He adds: “Improving affordability will boost lenders’ confidence in mortgage borrowers which should stimulate more lending as the year goes on.”