Prices fall in January

House prices fell 0.1% in January, according to the new report from Nationwide, leaving the annual rate of house price inflation at 4.2% - its lowest since December 2005 and the average price of a house at £180,473. The three-month rate has also fallen by 0.3% which is a clear sign of a slowdown. Nationwide Senior Economist Martin Gahbauer said: 'The weakening trend in house prices during the last three months is consistent with the loosening in housing market conditions that has become increasingly evident in the data. 'This undoubtedly signals a continued cooling in annual house price inflation during the months ahead. That being said, there may be some signs of bottoming out on the demand side,' he continued. Buyers priced out of the market last year could well be returning now with the hopes of lower interest rates and falling prices, Nationwide predicts. 'As the year progresses, a key factor to watch will be how much pent-up demand returns to explore the market, and how much of this is translated into actual housing transactions,' concluded Mr Gahbauer. Property economists are taking these figures as further evidence that prices will drop in the coming months. 'Demand is unlikely to fall dramatically further from here,' said Brigid O'Leary from Capital Economics. 'But we are looking at a weakening economic backdrop and see little prospect of a relaxation in lending criteria. This will keep activity in the housing market subdued and further falls in house prices seem more likely than not. We expect house prices to fall by 5% in 2008,' she continued.