A sharp dose of realism has hit the housing market, says Rightmove as sellers cut their prices in an attempt to attract buyers back to the market. Asking prices are down over £3,200 or 1.7% this month – the second biggest fall this year.

Rightmove's house price index is compiled directly from actual asking prices of properties coming onto the market over the previous 5-week period (from 10 October to 13 November) as opposed to other indicators based on mortgage approvals or survey of estate agents or surveyors.

This month’s index provides evidence of a significant downward correction in house prices, says Rightmove, as the market recognises that prices had become too high and that affordability had been stretched too far.

The fall causes the annual rate to fall sharply again, from 13.4% to 11.6%, heading for single figures by end 2004.

Further falls in asking prices expected over the next two months as the slowdown hits all regions and the market searches for a new level of sustainable pricing. With 40% more properties available than in January and stable interest rates, confident buyers have a great opportunity to do a good deal, says the firm.

Rightmove’s commercial director Miles Shipside said: “The readjustment phase began in late July and August, when sellers began to respond to the slowing summer market by chopping over £4,000 off average asking prices. However, the market remained sluggish even once the holiday period was over, and the summer price reductions were not sufficient to spur renewed activity."

"Perhaps surprisingly, the autumn heralded a ‘false dawn’ as prices bottomed out in September and began to creep up again in October, with sellers mistakenly thinking that low interest rates and a benign economic environment would encourage people to buy.”

“However, prospective purchasers have become increasingly reticent to commit, or quite simply unable to afford the price at which properties were marketed. Now we’re seeing a natural adjustment as sellers plumb the depths and are forced to drop asking prices again."

"We’re going to see a couple of painful months for sellers as the market finds a level at which buyers are confident again.”

“It may be ugly for a month or two, but a bit of turbulence is inevitable on the approach to the much hoped for ‘soft landing’.”