A strengthening housing economy does not necessarily mean a steady one. Case in point: London. Its home sellers are now cutting down asking prices, wiping out whatever gains were made in the first half of 2010.

On an average, London home sellers are now asking 7,000 pounds (or $26,500) less for properties on sale. According to the nation’s largest property website, Rightmove Plc, there is a drop of 4.1% (or 405,058 pounds average) in asking prices – the largest drop in the last two years. Across England and Wales, prices have also dropped 1.7%.

Despite the seemingly recovering state of the housing industry at the start of 2010, recent reports from -Nationwide Building Society and Halifax show that the recovery might be slowing down. Even Rightmove agrees that there might be a limit in price gains. Bank of England Governor Mervyn King confirms that banks are still feeling the damage, keeping them from lowering funding costs.

The highest declines can be seen in London boroughs of Wandsworth and Brent, with capital falling to 6.2%. Newham showed good performance with just a 1.2% drop; while the Kensington and Chelsea 1.7%.

Bob Crowley, a London realtor, says the decline in asking prices may be due to the fact that sales are not as straightforward as it had been. He shares that buyers are slowing transactions through a harder bargaining system. He proves his point by telling about the sale of his Notting Hill property.

The 3.25 million pounds London home, which was once home to now Downing Street resident Prime Minister David Cameron, was given a lower valuation by the buyer’s bank. Crowley eventually sold the house for its initial asking price, but not after much bargaining. “We finally got there, but it’s certainly much harder to get the asking prices now,” Crowley adds.

Since July 2010, London now looks at the highest number of unsold property per real estate agent. From 77% in July, the number is now up to 79%.

Properties now also stay longer in the market, averaging 95 days. Since January of last year, this is the most number of days properties remained unsold.

Even asking prices in England and Wales are highest since December; second highest since the start of the year.

Further bad news is shared by Rightmove, saying seven out of ten regions under its radar are showing declines. The west Midlands lead the decline, with a 4.4% drop in house prices.

Rightmove say that all is not lost, though. Demand for property is still showing signs that it will pick up sooner or later. Daily activity for the property website is strengthening, with 25.4 million page views on August 10.