The figures are the latest to show a fall in the housing market
UK house prices showed their biggest annual fall since the Nationwide began its housing survey in 1991.
The 8.1% annual decline came after house prices dropped by 1.7% in July, the building society said.
The average home now costs £169,316 which is nearly £15,000 cheaper than in the same month last year.
Meanwhile house builders expect the number of new homes built in England and Wales this year to be the lowest since 1924.
The Home Builders Federation (HBF) told BBC News that a slump in demand meant that government action was needed to help the market.
"This has implications for jobs," said John Stewart, director of economic affairs at HBF.
"Housing companies can only employ so many people. If their housing numbers fall signficantly then they'll have to reduce the number of people they employ."
The federation, which represents 80% of the house building industry in England and Wales has suggested measures to help the industry such as a stamp duty holiday and tax relief for first time buyers.
'No quick recovery'
The Nationwide survey found that house prices have fallen for nine months in a row and were at their lowest level since August 2006.
Property prices were still £11,000 higher than three years ago, the survey found.
"The weakening economy and poor housing market sentiment do not suggest that the market will recover quickly," said Fionnuala Earley, Nationwide 's chief economist.
Sellers were remaining reluctant to accept lower offers, which along with lack of availability of mortgages was pushing down house purchase activity.
Ms Earley said that consumers are tightening their belts in the current climate.
But she added that swap rates - the key driver of mortgage rates - had fallen slightly, which had allowed new fixed rate mortgage deals to come down in cost.
"As the cost of mortgages begins to come down, activity could be bolstered and restore some liquidity to the housing market," she said.
"However this is not expected to happen overnight."
If oil prices continued to fall, this could increase the possibility of rapid cuts in interest rates, which she described as good news for borrowers.
Ms Earley said that sharp rises in food and fuel prices were having a "double edged" effect of pushing up inflation while slowing the economy by squeezing disposable income.
This would also point to an eventual interest rate cut by the Bank of England's Monetary Policy Committee, she said.
Average prices are now £17,000 lower than at the peak of the market
The figures come shortly after the Bank of England said that the number of new mortgages approved for house purchases in June was at its lowest level since 1999.
The number of home loans approved in June fell to 36,000, down from 41,000 in May, the Bank said.
But the National Housing Federation said that it was expecting house prices in England to rise by 25% by 2013.
It said that the number of new homes being built was not keeping up with rising demand as a result of people living longer, getting married later and getting divorced more.
There also has been an increase in fears that many people will fall into negative equity, with the value of their house dropping below the value of their mortgage.
The Nationwide figures show that the average price of a UK home has fallen £17,000, or 9%, since their peak of last October.
This means that anyone who took out a 90% loan-to-value mortgage last autumn will now have almost all of the equity they put into their properties wiped out.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), said that the focus should now be on kick-starting the mortgage market.
Sir James Crosby, who was commissioned to report on the issue by the Treasury, said in his interim report published earlier in the week that the squeeze on mortgages was likely to continue until 2010.
Mr Rubinsohn said: "The failure to do anything could lead to an extended downturn in the housing market as a weaker economy pushes up unemployment and repossessions and the cost of borrowing rises."
Ed Stansfield, property economist at Capital Economics, said house prices would continue to fall.
"With the economy weakening and few signs of an end to the credit squeeze, the pace of the house price correction is likely to continue to gather momentum over the remainder of this year," he said.