The scale of the downturn in the house market has become more evident with new figures from Nationwide reporting a fall of 15.9% in house prices last year.

During December, prices fell by another 2.5% taking the average house price down to £153,048 - £29,000 less than a year ago.

The mortgage lender said three main factors have been behind the sharp fall in prices: credit conditions, expectations and affordability. Nationwide also admitted that it had expected the housing market to cool quickly as affordability was poor and economic conditions looked set to weaken, but we did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown.

Commenting on the figures Fionnuala Earley, Nationwide’s Chief Economist, said: “The price of a typical house fell by 2.5% in December, a stark contrast with the modest fall of 0.4% in November. This brings the annual rate of fall over the last twelve months to 15.9%. However the three-month on three-month rate, which smoothes the volatility often seen in the monthly numbers, shows a fall of only 4.2% in December. This is its slowest pace since May 2008. The price of a typical house is now £153,048, around the
same level as of spring 2005, but still over £17,500 more than five years ago. ”

“Conditions remain highly volatile going into 2009, making it more difficult than usual to arrive at a specific forecast for house prices. In these unsettled times a forecast subject to frequent change could itself add to greater uncertainty.

However the outlook for the economy, and consequently the housing market, can be
described in more general terms. The UK and various other economies slipped into recession in the final quarter of 2008 and there is little sign that this trend will be reversed in 2009. These conditions have already prompted the MPC to cut the base
rate by 3.5 percentage points, and are likely to lead to further falls in 2009 in an effort to prevent a deeper recession.

It looks like 2009 will be a bumpy year for the UK economy. ”