House prices fell by 1% during the early summer as homeowners finally became more realistic about how much their property was worth, figures have revealed.

The drop was the biggest monthly fall since November last year. The fall was larger than expected and pushed annual house price inflation down from 2.4% last month to 0.2% in July - the lowest level for 10 years, property website Rightmove revealed today.

	July	June
Average property asking price	£196,649	£198,642
% Change in month	-1.0%	+0.2%
% Change in past year	+0.2%	+2.4%
Monthly index (Jan 2002=100)	160.0	161.6

Rightmove said the boost for buyers happened because sellers were at last facing reality with the onset of the holiday season.

The figures come from properties put on sale by estate agents from 11th June to 9th July.

The "affordability gap" is starting to close, said the report. The drop follows two previous consecutive months of very modest rises in asking price rises. The headline annual rate fell from 2.4% last month to just 0.2%. It has therefore taken 12 months from the end of the boom last July for house price inflation to drop from 18% to virtually zero, giving an annual increase of just £451.

Increases in real wages combined with static prices over the last year mean that property is now 4% more affordable than at its high point in July last year. The reduction in properties available from 73 per estate agent office last month to 71 this month shows stronger demand. This is being reported anecdotally by estate agents and is borne out in the latest Bank of England mortgage figures.

Property transaction volumes may have reached the bottom of the trough for this cycle in the housing market. A modest recovery in transaction volumes in the second half of the year would complete the jigsaw in terms of the "soft landing" scenario.

With the "summer sale" in house prices and an anticipated cut in interest rates, buyers’ confidence should be boosted along with affordability. This gives buyers a summer window of opportunity where there are still high levels of competing sellers who now appear more flexible on price. The likelihood is that prices will be more negotiable throughout the quieter summer holiday season, before sale prices traditionally firm with the onset of autumn.

Miles Shipside, Commercial Director of Rightmove, commented: "Sellers are now realising they have to compromise some degree of their gains in order to sell their properties. This common sense is a vital step along the road to an orderly recovery of the property market, particularly if combined with an interest rate cut."

"Traditionally, we have witnessed that doing too little too late to increase the affordability and volume of buyers has led to the bursting of the property bubble."

"The willingness of sellers to ask lower prices for their properties, without being forced by unemployment or financial distress, is a significant step towards returning to a normal market, avoiding the desperate consequences of the last crash in the 1990s."