House prices fell again in December taking the annual fall to 16% and the average price to 2005 levels, a Nationwide survey shows.
According to the building society's latest index, December saw a 2.5% fall meaning the annual slump hit 15.9%.
Last month's decline is considerably more pronounced than the more modest slide of 0.4% in November. As a result, the average house price has fallen to £153,048.
Fionnuala Earley, chief economist at the mutual, warns conditions remain highly volatile going into 2009, making it more difficult than usual to produce a meaningful forecast for the year ahead.
"While house price falls are helping to improve affordability and the steep drop in interest rates will provide some further support, all of the typical affordability measures are still above their long-run averages," she says.
"This suggests that prices have further to fall before significant numbers of buyers will be willing to return to the market. But, as the market adjusts, property will start to look cheaper and this will encourage more activity."
Earley also argues an important underlying factor which may play a part in the recovery of the market is the build-up in pent-up demand since 2003.
"Since then, first-time buyers have made up only 33% of transactions, compared to an average of 46% since 1979.
"If one assumes that the same proportion of first time buyers would have liked to have entered the market, it is possible to work out how many have been "locked out".
"It does appear likely that a substantial pool of pent-up demand has been building up, which could make its way back into the market when affordability improves and economic conditions and house price growth expectations stabilise," she concludes.IFAonline
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