House prices show August fall

Nationwide says house prices are a 'picture of relative stability'. Photograph: Dan Kitwood/Getty Images

House prices fell by 0.6% in August, according to Nationwide's latest survey, more than reversing July's rise and surprising economists who had expected them to stay flat.

The building society's monthly snapshot of the housing market showed the average price of a home in the UK fell by £2,817 over the month to £165,914. This is 0.4% lower than in August 2010.

Economists polled by Reuters had forecast that prices would remain flat in August, giving a 0.4% rise year-on-year.

Nationwide said house prices had actually increased by 0.1% over the less volatile three-month measure, though this was lower than the 0.3% rise seen in the previous three months.

Its chief economist, Robert Gardner, said a "picture of relative stability" had characterised the market over the past 12 months, and that this was expected to remain the case for the rest of 2011. However, he warned that any increase in unemployment could lead to sharper falls.

"For some time now the residential property market has been moving sideways, as weak demand for homes coexisted with a situation where relatively few homes were coming on to the market," he said.

"A further fall in employment would be likely to upset the relatively delicate demand-supply balance and put downward pressure on prices."

Howard Archer, chief UK economist at IHS Global Insight, said the latest figures were consistent with his expectation that house prices would continue to fall.

"The fall in August ties in with our belief that house prices are likely to trend down gradually over the coming months in the face of persistently weak economic activity, rising unemployment and low consumer confidence. Specifically, we forecast house prices to fall by around 5% by mid-2012.

"We suspect that squeezed household purchasing power, tightening fiscal policy, a weakening labour market and persistent serious consumer concern over the economic outlook will limit potential buyers and weigh down on house prices. On top of that, there are still significant difficulties in getting a mortgage, particularly for first-time buyers."

Nationwide's index is based on mortgages it has approved in the previous month, so does not reflect the whole market. Figures from the Land Registry, which are based on completed sales in England and Wales, have tended to show larger annual price falls than Nationwide in recent months. The figures for July, published on 26 August, showed house prices down by 2.1% year on year.