House prices are falling at a faster rate than during the recession of the early 1990s, according to data released by Halifax today.
Britain's biggest mortgage lender said prices fell by 2.4% in May, wiping almost £5,000 off the value of the average house.
The decline follows a 1.3% drop in April and a shock 2.5% drop in March - the biggest monthly decline since 1992 - and means prices have fallen by around 6.5% in the past three months.
The figures provide further proof that, after the boom years, Britain's housing market has now plummeted as potential new buyers stay away.
"The pace of decline is now far worse than the early 1990s. Other housing guides are similarly grim," said Michael Saunders of Citigroup, adding that the decline over the past quarter was the worst since the Halifax index began, in 1983.
According to Halifax's data, the average house now costs £184,111, down from £189,027 in April. A year ago it cost £196,893, showing that prices are down by 6.5% in the past year.
"It's now very clear that house prices are in vertical decline, with our worst expectations being confirmed every month," said Liberal Democrat Treasury spokesman, Vince Cable.
He said the decision to keep rates on hold will mean little to large numbers of families who are having to re-mortgage at significantly higher rates of interest. Cable called on the government to give the Bank of England a measure of inflation which "takes full account" of what is happening in the housing market, saying that had ministers allowed interest rates to reflect the over-heating of the housing market several years ago, the bubble would not have grown so big.
He added: "It is now necessary to ensure the bubble does not burst with such spectacular and damaging effects that millions are drawn into negative equity as happened during the last Tory recession."
Martin Ellis, chief economist at Halifax, said the slowdown was partly caused by the tightening of the mortgage market, due to the credit crunch, and the increased pressure on consumer spending.
The latest figures from the Royal Institution of Chartered Surveyors (Rics) showed that first-time buyers are particularly thin on the ground. The number of new buyers showing an interest in buying a house has fallen for the last 17 months running.
Ellis pointed out that the recent drop in prices comes after several years of growth, with the average home rising £88,000 between August 2002 and August 2007.
But Howard Archer, analyst at Global Insight, said that the latest data was "undoubtedly alarming". He now expects prices to plunge by 12% in 2008 and again in 2009, having previously expected falls of 7% this year and 9% the year after.
The current gloom in the sector was accentuated by Bellway, the UK's fourth-largest builder, which this morning reported a 31% drop in reservations. It now expects to sell up to 15% fewer homes this year than in 2007.
The rapidly deteriorating housing market is adding to the pressure on the Bank of England to cut the cost of borrowing, with the housebuilding industry yesterday calling for a half-point cut in interest rates. But with consumer prices inflation at 3%, and likely to keep rising, the Bank's monetary policy committee voted to leave rates at 5% today.
The MPC's task has become trickier in recent months. Inflation has been driven higher by rising food and energy prices, encouraging hawks on the committee to resist pressure to cut interest rates. But the slowdown in consumer spending and the drop in house prices have led doves such as David Blanchflower to push for lower rates.
Yesterday the OECD warned that UK economic growth will drop to 1.4% next year, its lowest level since 1992. It predicted a "significant downswing" as both consumer demand and investment are hit by the credit crunch, but advised against a cut in interest rates.
Halifax's survey is one of several that tracks the health of the UK's mortgage market.
Data released by Nationwide last week has also shown a sharp deterioration in the health of the housing market over the last few months. It reported a 2.5% drop in house prices in May, and said the average price of a home is down by £8,000 compared with a year ago.