As a general rule, the trailer ball should be a little nose-down when connected to the car. Yours looks very close to level now, so I think dropping it so it is about 25mm nose down would help. The tongue you have looks like it could be an adjustable type with a couple of holes to effect height adjustments. Drop it one hole and see how things are.
re rear sag. I also think the car, as said, has saged with the weight of the trailer. This is not uncommon, All vehicles sag with extra weight on the rear. Get a hefty person to stand/balance on the tow ball tongue (one that might be about the same weight as your tow ball would be good) and see how much the car sags. I think you will find there is an issue with the amount of sag, not the fact that it has saged. As been pointed out, the front has risen due to the trailer weight and consequental rear sag which, because of the see-saw effect of the car's overall suspension will take weight off the front wheels. The lesser weight over the front wheels will make the car more "twitchy" to drive. This is what you may have experienced.
To get the front down/return some of the weight lost, weight distribution hitches are about the only thing I know of that will achieve this, but for such a small load, I think this may be overkill.
Airbags are the next option But (in my opinion) only if the rear suspension is coil springs. Bags can cause unwanted problems with leaf springs, despite hundreds of vehicles with leaf springs having them added. I assume you have coil springs. . They will raise the height of the rear and give a little firmer ride when pumped up, but don't put weight back in the front wheels.
Replacing the springs is the third option. The standard springs may have lost some of their tension over the years (how old is your car?) and standard springs may be all that is necessary. A little beefer spring would be better.
My suggestion is to replace the springs, readjust the ball height and see how you go. Airbags would be my next add.
Also, the type of hitch you have on this trailer puts the actual pivot point of the assembly a little distance from there it would be with a standard ball. This increases the effective weight placed/reflected on your rear suspension and rear axel by the trailer, due to the lever effect of having the pivot further from the axle. Just a point to remember. The pivot point, being further from the ball also gives the trailer a greater leaverage to amplify up and down movement, The extra distance may only be 100mm or so, but the effects are there and can be felt.
