House prices fall again

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Nationwide Building Society said prices dropped by 1.3% during the month, while the annual rate of decline hit a new record high of 16.6%.

The latest slide left the average home costing £150,501 - more than £35,500 less than at its peak in October 2007.

Martin Gahbauer, Nationwide's senior economist, said: "The price of a typical house fell by a further 1.3% in January, as the deepening economic recession and financial market turbulence continued to weigh on housing market sentiment and activity."

But he added that the three-month on three-month rate of change, which is generally seen as a smoother indicator of short-term trends in prices, had improved for the fourth month in a row.

The price drop seen during the three months to the end of January was 4%, compared with a fall of 4.2% during the previous three month period, although Mr Gahbauer cautioned that it was too early to say that this marked the beginning of a sustained improvement in the short-term trend.

Instead, he warned that a pre-condition for a recovery in the housing market would be an end to the deterioration in the wider economy.

The housing market is being hit by a combination of the mortgage shortage, rising unemployment and an expectation among potential buyers that prices still have further to fall.

However, anecdotal evidence suggests that recent steep interest rate cuts, combined with the sharp fall in house prices seen during the past year, is beginning to tempt potential buyers back into the market.

Mr Gahbauer said: "The increasing level of enquiries suggests that activity levels have a reasonable chance of recovering from their recent lows once an end to the recession is in sight and/or the recent Government interventions lead to an improvement in the availability of credit."