Divisions over house pricing predictions

The group reported a 0.9 per cent slide during the month, leaving the average home costing 169,347.

The latest drop followed a fall of 0.5 per cent in July, and was the first time house prices dropped for two months in a row since February 2009, according to the Nationwide index.

The annual rate of change also weakened for the fourth consecutive month to stand at 3.9 per cent.

The gloomy figures came just days after economists warned that the housing market could be heading for a double dip.

There are predictions that property prices could end the year around five per cent lower than they started it, with some economists expecting prices to have lost 25 per cent of their value by the end of 2012.

But Martin Gahbauer, Nationwide's chief economist, said declines in prices were "not an unhealthy development", as the recovery in the housing market had got ahead of improvements in the wider economy. With little sign of distressed selling, price declines were likely to remain "relatively modest".

Richard Hatch, head of residential at property consultancy Carter Jonas, agreed. "The market is simply readjusting after getting ahead of itself."

But others were less optimistic. Howard Archer, chief UK and European economist at IHS Global Insight, said: "While we believe that a sharp correction in house prices is unlikely, we do expect them to fall back by three per cent to five per cent over the second half of 2010."

Capital Economics was more pessimistic, predicting house prices would end 2010 five per cent lower than they started the year, with further falls of 10 per cent in both 2011 and 2012.