The fall took the annual rate of inflation down from 1% to 0.6%, bringing the average house price down to £162,228.
After a “surprisingly resilient” 2011, Nationwide’s chief economist Robert Gardner expects prices to continue moving sideways or modestly lower in the months ahead.
“The economy is not expected to gather much momentum until the second half of 2012 at the earliest, which suggests that labour market conditions and buyer sentiment may be slow to improve,” he said.
The need for a bigger deposit, the affordability problems and lack of confidence all feed into a slower market, he added.
Howard Archer, chief UK and European economist at Global Insight said some people are still finding it hard to get a mortgage and bank’s could tighten lending further this year due to the weakening economy and difficult wholesale funding conditions.
“These factors are seen outweighing the support to house prices coming from extended very low interest rates,” he said.
However, the squeeze on consumer purchasing power should ease as 2012 progresses as inflation falls back markedly, which should aid house prices to stabilize later in the year, he said, despite the worsening outlook for unemployment.
