Price of average house 'will fall by £18,500 this year' - that's £50 a day

Neil Woodford, of Invesco, said they are simply too high and the average home will drop £18,500 by New Year's Eve, or £50 a day.

The fall may be much worse in some parts of the country, warned the 47-year-old investment guru, with the biggest losers the owners of new-build flats aimed at buy-to-let investors which he fears are "almost unsellable".

His prediction is more negative than those of any of the respected housing commentators.

Even the most pessimistic, Capital Economics, had been forecasting a fall of only five per cent this year. The warning comes in a note from Invesco which is intended only for professional clients and "not for consumer use".

Mr Woodford, who controls nearly £20billion of investors' money, said the country's 18.5million homeowners should brace themselves for a torrid year.

He said: "Although my forecast is for house prices across the UK to fall eight to 10 per cent in 2008, the decline may be much worse in certain areas."

Further evidence emerged yesterday of investors deserting the stock market in record numbers.

Latest figures show the largest amount of money was withdrawn from investment funds since records began. In December, net retail sales - the difference between money invested and money withdrawn - fell by £377million.

The figures, from the Investment Management Association, reveal a dramatic turnaround, compared to an inflow of £1.7billion in December 2006.

It is a sign of panic among investors as share prices continue to fall.

The result is likely to be even more damaging as the figures exclude last week's rollercoaster ride on the world's stock markets.

If investors were already nervously selling shares in December, they are likely to have continued this month.