Property values fell by 0.9% during August, following a drop of 0.5% in July, the first time house prices have fallen for two consecutive months since February 2009, according to Nationwide.
Annual growth was also down, for the fourth month in a row, to 3.9%, the lowest year-on-year rise since November last year. The quarter-on-quarter growth rate fell to 0% during the three months to the end of August.
The building society said that unless house prices bounced back strongly in September, quarterly growth is likely to turn negative next month.
Martin Gahbauer, Nationwide's chief economist, said: "Recent market trends remain consistent with an unwinding of the supply-demand imbalance that drove up prices for much of the last year.
"As more sellers have returned to the market, buyers have a greater selection of properties to choose from and more bargaining power with which to bid down asking prices."
But he added that there is little evidence of distressed selling, with the number of homes being repossessed falling during the second quarter.
He said: "As such, the current period of price declines is likely to remain relatively modest. Given that the price increases of the last year had gotten ahead of the recovery in the wider economy, the current correction is not an unhealthy development."
Nationwide's figures are unlikely to improve confidence among potential buyers, many of whom have adopted a wait-and-see approach because of the state of the economy, job insecurity and the potential impact of future tax rises. Meanwhile, lenders continue to demand high deposits for their most competitive deals.
Economists are divided on how far they expect house prices to fall, with some predicting drops of 3%-5% before stabilising. Others however expect property to lose around 25% of its value between the beginning of this year and the end of 2012.
The average home currently costs £169,347, according to Nationwide.
Property values fell by 0.9% during August, following a drop of 0.5% in July, the first time house prices have fallen for two consecutive months since February 2009, according to Nationwide.
Annual growth was also down, for the fourth month in a row, to 3.9%, the lowest year-on-year rise since November last year. The quarter-on-quarter growth rate fell to 0% during the three months to the end of August.
The building society said that unless house prices bounced back strongly in September, quarterly growth is likely to turn negative next month.
Martin Gahbauer, Nationwide's chief economist, said: "Recent market trends remain consistent with an unwinding of the supply-demand imbalance that drove up prices for much of the last year.
"As more sellers have returned to the market, buyers have a greater selection of properties to choose from and more bargaining power with which to bid down asking prices."
But he added that there is little evidence of distressed selling, with the number of homes being repossessed falling during the second quarter.
He said: "As such, the current period of price declines is likely to remain relatively modest. Given that the price increases of the last year had gotten ahead of the recovery in the wider economy, the current correction is not an unhealthy development."
Nationwide's figures are unlikely to improve confidence among potential buyers, many of whom have adopted a wait-and-see approach because of the state of the economy, job insecurity and the potential impact of future tax rises. Meanwhile, lenders continue to demand high deposits for their most competitive deals.
Economists are divided on how far they expect house prices to fall, with some predicting drops of 3%-5% before stabilising. Others however expect property to lose around 25% of its value between the beginning of this year and the end of 2012.
The average home currently costs £169,347, according to Nationwide.