Asking prices for homes coming on to the market fell by 3.2 per cent during the four weeks to November 6, the biggest drop since December 2007, according to property website Rightmove.
The group said asking prices in England and Wales had now fallen in four of the past five months, leaving the average property valued at 229,379.
It warned that with an unseasonably high number of unsold properties on estate agents' books, sellers faced tough competition to find a buyer.
The average home is now taking 102 days to sell, the longest time recorded by the group since it began its index in 2001, as potential buyers adopt a wait and see approach.
There are signs that sellers are also putting their moving plans on hold until the outlook for the market is clearer, with the number of properties put up for sale falling by 9.1 per cent during the month.
Despite the drop, with an average of just over 24,000 new sellers coming to the market each week, properties for sale still outnumber the level of mortgages being approved for house purchase by two to one.
The group said that while not every property sells and not all buyers need a mortgage, the continuing shortage of mortgages was contributing to the current stagnation in the market.
The director of Rightmove, Miles Shipside, said: "Agents report that the Christmas slowdown has come early this year, as both would-be buyers and sellers are adopting a wait and see policy until the direction of next year's housing market becomes apparent.
"The combination of high unsold stocks, the mortgage famine, a shaky economy and the normal winter slowdown gives an ideal scenario for bargain-hunting buyers.
He said the traditional rush to complete transactions before Christmas was more subdued this year, with estate agents having an average of 77 unsold properties on their books, an "unseasonably high" figure