House prices have grown by just 1.1% over the past year, the lowest annual growth rate since 1996, according to Nationwide's house price index.
Nationwide says consumer sentiment is beginning to shift, with many expecting house prices to have fallen 3% on an annual basis within six months.
The provider's latest index shows the average price of a home fell by 0.6% between February and March, down from £179,358 to £179,110.
Annual house price growth also took a major hit, falling from 2.7% in February to 1.1% in March, meaning homes are worth an average of just £2,027 more than they were this time last year.
Nationwide says consumers are starting to have a more negative view of the housing market, but more than two thirds still believe prices will remain broadly stable or increase over the next six months.
However, 3% feel prices will be much lower and many also believe prices will see a moderate fall, which could quickly turn the tide of the market.
Fionnuala Earley, chief economist at Nationwide, explains: “While consumers’ estimates of the precise rate of future house price growth has not been a good measure of turning points in the market, nor a good predictor of the actual rate of price movements, once a general trend in expectation has been formed its effect is likely to be highly influential on both transactions and price levels.
“This happens, first by removing the urgency to move and second by giving buyers a bigger incentive to drive a harder bargain in order to hedge against any possible falls in prices.”
Nationwide is currently predicting prices will see a moderate fall during 2008 and says this will help improve stability in the market. Prices are 11% higher than two years ago and 47% higher than five years ago, says Earley, meaning a moderate fall would not be disastrous for many homeowners.
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