House prices continued their downward trend in December, falling on average by 2.5%, which brings the annual rate of fall to 15.9% and the average price of a house to £153,048, from £158,442 in November.

House prices are now around the same level as in the spring of 2005, says Nationwide, as 2008 was a difficult year for the housing market, compounded as it went on by the worsening economic situation throughout the country. Three main factors were behind the sharp fall in prices, says the report: credit conditions, expectations and affordability.

‘As house price expectations turned negative, the incentive to enter the market evaporated and buyer demand fell accordingly. As a result, housing market activity plunged to the lowest levels ever recorded and house prices fell sharply,’ said Fionnuala Earley, Nationwide’s Chief Economist.

The lender also stated that as conditions remain volatile going into 2009, it is more difficult to arrive at a specific forecast for house prices: ‘In these unsettled times a forecast subject to frequent change could itself add to greater uncertainty,’ the report points out, although it does also forecast that sharp cuts in interest rates will provide support to existing and potential homeowners and pave the way for improvement in affordability which will eventually encourage buyers back into the market.

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