The price of an average house has now fallen by 1% year-on-year, according to the latest figures from Nationwide, the first such fall since March 1996. The price of a typical house now stands at £178,555, £1,759 lower than at this time last year. This is a reflection of ‘a weakening sentiment in the market brought about by poor affordability and tighter financial conditions,’ according to chief economist Fionnuala Earley.

As a result of the credit crunch, a fall in transactions pushed up the stock of unsold property on the market and has improved the bargaining power of buyers, thus pushing down on prices, the report states. It also hints that as the economy slows, interest rate cuts should be able to moderate the effect of consumer caution and ultimately bring about a more stable market, although at a carefully controlled pace: ‘The risk that the current strength of oil and food prices could feed into wages means that the MPC will probably prefer to cut rates at a more gradual pace than homeowners might prefer,’ says the report.

Economists also predict that the slowdown may last longer than into next year: ‘We have long warned that the housing market boom would end with a major correction,’ said Ed Stansfield from Capital Economics. ‘And that correction now seems to be unfolding. Since peaking last October, the Nationwide measure of house prices has fallen by a cumulative 4.2%. A quarter of the 20% decline that we are forecasting by end-2009 has already been delivered. And, as we have stressed in recent publications, there is no guarantee that prices won’t fall further in 2010,’ he continued.