House prices fell by a smaller margin in November than the previous months, according to a report from the Nationwide Building Society.

At the same time, the annual rate of descent eased to 13.9%, compared with a year-on-year drop of 14.6% a month earlier.

But despite the average price dropping by just 0.4%, compared with 1.3% in October, a market recovery still remains some way off, says the report.

The average home now costs £158,442, £25,000 less than a year ago, but still £25,000 higher than in November 2003.

Fionnuala Earley, Nationwide's chief economist, said: "In spite of the moderation in house price falls recorded in November, with the economy in recession, conditions do not appear very favourable for a swift recovery in the housing market.

"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."

The group said the biggest impact on the housing market is likely to be the Chancellor's response to the Crosby Review on mortgage finance.

Former Halifax Bank of Scotland boss Sir James Crosby recommended that the Government should provide temporary guarantees for mortgage-backed securities to get the market moving again.

This should be accompanied by changes to increase the transparency of new mortgage-backed securities, and a review of the fair-value accounting principle to be carried out by the International Accounting Standards Board.

But he warned that there was a real risk that the current mortgage shortage could cause the house price correction to overshoot, adding that it was very likely that new net mortgage lending would fall to below zero in 2009.

Ms Earley said: "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.

"A Government guarantee may be the catalyst required to restart this market and begin to add liquidity, especially as affordability is now improving."

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