The decrease was partially fuelled by a rise in the proportion of smaller homes selling during the month. One and two bedroom properties accounted for 63% of sales in October – up from 58% earlier in the year.
David Marshall, business analyst with ESPC, said: "The growth we saw in the house prices earlier in the year largely reflected a rise in the proportion of large homes selling which obviously inflated the average.
"Over the last month or two, we’ve seen sales of smaller properties increase a little which has gone some way to reverse that trend and this partially explains the decline in the average house price figure.
"With that said however, throughout 2010 the supply of properties to the market has consistently exceeded demand and this is also now helping to bring prices back down again."
The number of properties sold in Scotland’s capital showed an annual increase for the ninth consecutive month, but the increase of 3.2% was the smallest recorded during that time. Meanwhile the number of properties available on the market remained around 50% higher than at this point in 2009.
Marshall said: "Growth in sales continued in October but at a much slower rate than we saw earlier in the year, and it’s important to note that the number of homes selling is around half that seen at the peak of the market. At the same time we have a situation where there are considerably more properties on the market than there were last year.
"Earlier [this week] we saw some figures released by Registers of Scotland which showed the average house price in Edinburgh had reached record levels but this was based on sales earlier in the year when growth in the average was fuelled by a rise in the number of larger properties selling.
"Conditions now clearly favour buyers and there is no question that over the last two or three months the average has started to come down again. While the number of sales remains comparatively low there is likely to be some volatility in figures from month-to-month, but we still expect that the overall trend will be for the average house price to come back to levels seen at the start of 2010 in the months ahead."
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