House prices have fallen for the seventh month in a row after both buyers and sellers stayed away from the market.
The average cost of a home in England and Wales dropped by 0.5% this month to stand at £153,600 – 2.2% less than in January 2010, according to housing intelligence firm Hometrack.
Potential buyers continued to sit on their hands in the face of house price falls, and uncertainty over the economy and future interest rate rises.
Estate agents reported a further 9.5% fall in the number of people registering with them, the seventh consecutive monthly decline, contributing to a 26% fall in demand during the past six months.
But there were also further signs that homeowners are becoming increasingly reluctant to put their properties on the market, with the supply of new homes for sale falling by 5.4% during the month – the biggest drop for four years.
Richard Donnell, director of research at Hometrack, said: “There are no signs of a New Year bounce for the housing market as 2011 begins with a sluggish start.
“The supply of new homes coming to the market continues to fall but it is the change in demand that we need to pay most attention to, as this will have the greatest impact on pricing levels in the first half of 2011.
“Concerns over the economic outlook and the biting reality of spending cuts are doing little to improve a fragile market defined by weak consumer sentiment and a lack of demand for housing.”
The group expects the number of sellers to continue to fall during the coming quarter, as people are forced either to reduce their price or withdraw their home from the market.
It said in the short term this would not be enough to offset the downward pressure on prices, but over the course of the year it would begin to act as a support and limit falls in values.