UK house prices fell 16.2% last year with a drop of 2.2% in December alone, according to Halifax's House Price Index.
This puts the average house price at £159,896; back down to the average level of August 2004.
However, a decrease of 5.2% in Q4 last year was similar to the drop for the previous two quarters which suggests the underlying rate of decline may be stabalising, Halifax says.
House market activity shows signs of picking up but at a low level. Estate agents reported the first increase in newly agreed sales for 18 months in November and the first rise in new buyer enquiries since October 2006 (sources: Bank of England and RICS).
Affordability is also at its lowest for five and a half years with the house price to average earnings ratio falling to an estimated 4.44 in December 2008 from a peak of 5.84 in July 2007, Halifax reports.
Commenting on the figures, Martin Ellis, Halifax chief economist, says: "There was a 2.2% decline in average UK house prices in December. Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months.
"But a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households' finances should support market activity and prices."
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