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The rate at which house prices are falling eased "significantly" this month, but a market recovery remains some way off, the UK's largest building society said today.
According to Nationwide's monthly snapshot of the property market, house prices fell by 0.4% in November compared with a drop of 1.3% in October.
This is smallest monthly fall since prices started to decline a year ago, and has reduced the annual rate of price deflation to 13.9% from 14.6% last month.
However, the society said conditions did "not appear very favourable for a swift recovery in the housing market".
Nationwide's chief economist, Fionnuala Earley, said: "The labour market is weakening, which will inevitably hinder market demand, particularly when property remains expensive relative to earnings.
"With prices falling at their current rate there is also little incentive for new borrowers to hurry into the market."
Earley said November's 1.5% cut in interest rates would help existing homeowners and potential buyers, but changes to the stamp duty threshold in September and measures in the pre-budget report to improve consumer confidence were unlikely to have much impact on the housing market.
More important would be the government's reaction to Sir James Crosby's review of mortgage finance, she said, which was handed to the chancellor on Monday.
Crosby, a former head of Halifax Bank of Scotland, recommended that the government provide temporary guarantees for mortgage-backed securities to get the market for the product moving again.
Earley said it was clear that uncertainties in the financial markets were still affecting the availability and cost of funds, and this was having a knock-on effect on borrowers.
At the end of 1990 when interest rates were 14% and there were almost double the number of unemployed claimants as today, more people were taking out mortgages to move home.
At that point, 60% of first-time buyers were borrowing more than 90% of the value of the property they wanted to buy, but today that figure is just 14%.
Since the start of the year, lenders have reduced maximum loan-to-values and raised interest rates on loans for borrowers with less than 25% to put down as a deposit.
"If funds once again became more freely flowing as a result of Crosby's recommendations, this could stimulate levels of activity in the market and thus help to promote a swifter recovery," she said.
"While there is still a great deal of uncertainty about the appetite of investors for mortgage-backed securities, a government guarantee may be the catalyst required to restart this market and begin to add liquidity, especially as affordability is now improving."
According to Nationwide's index, house prices have now fallen for 12 months running, and the average cost of a home stands at £158,442, around £25,000 lower than in November last year.
Figures published earlier this week by the British Bankers' Association showed that in October mortgage approvals were running at less than half last year's level, suggesting prices are unlikely to start going up in the short term.
Howard Archer, chief UK economist at IHS Global Insight, said he did not believe the housing market was set for a recovery any time soon.
"Even if government measures do increasingly get the banks to lend, it will clearly take time for confidence to improve and mortgage lending to pick up significantly.
"On top of this, affordability ratios in terms of house prices-to-earnings are still relatively stretched despite coming down significantly in recent months. Muted wage growth over the coming months will limit the speed at which affordability improves."
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