House prices fall 2.5 percent in December

LONDON (Reuters) - House prices fell another 2.5 percent in December to make 2008 their worst performing year on record, the Nationwide Building Society said on Tuesday.

Nearly 30,000 pounds came off the price of the average home last year to leave it 15.9 percent lower than a year ago -- a record annual decline.

December's 2.5 percent drop was the sharpest in seven months and more than five times the rate of the month before, in a sign market conditions are worsening rapidly despite the Bank of England slashing official interest rates to just 2 percent.

The central bank is expected to chop borrowing costs again later this week, but analysts predict only more pain for homeowners in the months ahead as new mortgage lending has all but dried up because of a global credit crunch.

"The short-term outlook for the housing market is fairly weak. This should not be surprising given the economic and labour market conditions we face," said Fionnuala Earley, chief economist at Nationwide.

Another survey published by Nationwide earlier on Tuesday showed consumer confidence took another sharp hit in December as people worried the economy was heading into its first recession since the early 1990s.

After a decade in which they trebled, house prices fell every month last year, according to the Nationwide, taking the average level back to what it was in spring 2005.

"Conditions remain highly volatile going into 2009, making it more difficult than usual to arrive at a specific forecast for house prices," Earley said.

(Reporting by Sumeet Desai; editing by Stephen Nisbet)