More evidence housing boom will end next year

The drop knocked £1,656 off the average home in England and Wales, according to property website Rightmove, cutting the overall value to £239,986.

During the four weeks to November 10, the only area to see house prices rise was London, where the average cost of a home rose by 2.3 per cent.

The West Midlands saw the biggest falls of 2.4 per cent, followed by the South East at 2per cent and Yorkshire and Humberside at 1.9 per cent.

The news is the latest to suggest the market will flatline and could even go into decline next year.

Housing experts have warned that prices are now so stretched after a decade-long boom that first-time buyers are being priced out of the market, leading to a curb in demand.

Banks are also increasingly reluctant to lend because their finances have been hit by the meltdown in the U.S. property market, meaning the easy credit that has been fuelling the boom is no longer available.

House prices have followed a volatile pattern during the past four months, which has effectively left prices unchanged since July.

Rightmove said it expected there to be further falls during December and the early part of next year, before a period of minor price gains later in the year.

Miles Shipside, Rightmove's commercial director, said: "Prices are set to flatline in 2008."

This is based on the market being underpinned by demand continuing to outstrip supply, however, and a recession would scare off prospective purchasers.

The Bank of England last week signalled that interest rates could be cut in a bid to ward off a recession.

Governor Mervyn King said the property market was already slowing and the situation would worsen as banks reined in lending.

Rightmove said it expected the first interest rates to be introduced in February or soon after, with more to follow during the year.

The latest fall in prices helped reduce annual house price inflation to 7.9 per cent, its lowest level since June 2006.

The average time a property is on the market has also increased from 85 days to 92 days, the highest figure for November since Rightmove first started keeping records five years ago.

Nationwide Building Society last week joined those forecasting that house prices would remain unchanged during 2008.

Its chief economist, Fionnuala Earley, said at the time: "Momentum is now fading and a number of factors suggest that house price inflation will drop to 0 per cent by this time next year.

"The main reasons for this more subdued outlook lie on the demand side of the market, where a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations appear likely to reduce the level of activity."