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Last Updated: Thursday, 1 September 2005, 08:04 GMT 09:04 UK
House price 'slowdown' continues
Annual house price growth has slowed to its lowest level in nine years, according to the Nationwide.

Prices fell a seasonally adjusted 0.2% in August, the society said, leaving the average cost of a home at 157,310.

Annual price growth fell to 2.3% from 2.6% in July. However, in the three months to August prices grew by 0.3%.

Prices were experiencing a "continued controlled slowdown", Nationwide said - in line with the view that the market is heading for a soft landing.

'Increased optimism'

"In spite of a fair deal of bearish comment, the housing market has remained quite resilient this year following last year's interest rate hikes," Nationwide group economist Fionnuala Earley said.

Affordability is still an issue, particularly for first-time buyers, and it will take some time
Fionnuala Earley, Nationwide

The figures were in line with recent surveys from the Land Registry and Office of the Deputy Prime Minister (ODPM) which showed annual house price inflation fell from almost 20% a year ago to about 5%.

Ms Earley said that activity was increasing with monthly purchase approvals on the up and estate agents reporting that sellers were now willing to adjust prices.

"This, along with a cut in interest rates, has made it more of a buyers' market - which has led to increased numbers of buyer enquiries and increased optimism about sales from estate agents," she said.

Affordability worries

However, Ms Earley warned that the appearance of a stabilising market did not necessarily signal a renaissance.

Homebuyers look at house
First time buyers are still finding it tough to get on the property ladder

"Even though wage inflation is almost twice the rate of house price inflation, affordability is still an issue particularly for first-time buyers, and it will take some time for the balance to be redressed."

Looking ahead, Ms Earley said she expected the market to continue to cool in a "controlled fashion".

Ed Stansfield at Capital Economics said the figures were "no surprise" and showed the Nationwide's figures were catching up with "long standing anecdotal evidence" of a market slowdown.

"We're set for a period where there'll be a steady drip feed of falls," he said.

Steady slowdown

Price declines experienced in London and the South East are set to spread across the country he added.

The UK property market has been slowing steadily over the past year, but most housing experts do not expect a dramatic slump in prices.

Earlier this year Capital Economics had predicted a 7% fall in prices during 2005. However, in June it said its original forecast was too "gloomy" as the market appeared to be undergoing a correction.

It now says a fall of around 2%-3% is more likely. "We wouldn't expect to see a rapid change in the rate of fall," Mr Stansfield told the BBC.

Last month, a study by the Centre for Economic and Business Research predicted that prices would fall 5% by 2007, but said that fears of a crash have been overdone.

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