Its latest survey reveals demand for housing dropped 4.3% in November, the fifth monthly fall in a row and the largest single monthly decline since January 2009.
Hometrack says the decline is largely seasonal but the scale of the fall has been exacerbated by weaker consumer sentiment.
It says as the outlook has become uncertain, so the supply of homes coming to the market has begun to fall. The number of properties for sale fell by -0.4% in November.
This is the first time in nine months that the survey has registered a fall in supply.
It believes a continued reduction in the supply of homes for sale seems inevitable in the coming months as vendors either reduce asking prices or withdraw property from the market.
November registered the fifth consecutive monthly decline in house prices – down -0.8% compared to a -0.9% fall in October.
The extent of house price falls stabilised over November with prices down across 54% of the country compared to 56% in October.
The proportion of the asking price being achieved has dropped to 92.4% the lowest level since September 2009.
Richard Donnell director of research at Hometrack – the property analytics business, says: “The seasonal slowdown in the housing market has kicked in a month early with demand for housing falling at the fastest rate for 20 months according to the latest housing market survey from Hometrack.
“Looking ahead the real impetus to reduced supply is set to come from agents. Over the coming months estate agents will be turning their attention to the supply of homes on their books anxious to adjust stock levels to realistic prices more closely aligned to demand. The reality is that in the months ahead vendors will either need to reduce prices or withdraw property from the market.
“This is a process that will run over the next three to six months and will result in a gradual tightening of supply, a trend that will act as something of a support to prices over the course of 2011. In the near term we expect demand to remain weak and this will continue to put downward pressure on prices in the coming months.
“Over the course of 2011 we expect average house prices to decline by -2%.”