House prices fell by 0.9% month-on-month (m/m) in August, following a decline of 0.5% m/m in July. This is the first time since February 2009 that house prices have fallen in two consecutive months. The 3 month on 3 month rate of change – generally a smoother indicator of the recent price trend – fell from 1.2% in July to 0.0% in August, suggesting that house prices have essentially stagnated over the summer. Unless house prices bounce back strongly in September, the three month rate of change will turn negative next month. The annual rate of inflation – which compares the current average price with the price level twelve months ago – remained in positive territory at 3.9%. However, it is down quite sharply from rates of 6.6% in July and 8.7% in June. 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. There is little evidence of distressed selling, however, with the Council of Mortgage Lenders’ second quarter figures showing another drop in mortgage arrears and possessions. 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.