After five years of price rises, 2004 has been the year which has seen the housing bubble finally show signs of bursting.

While an all-out bang has not occurred, the market is slowly losing steam and is expected to deflate further next year.

After the rapid rises of the first part of the year, prices peaked in the summer and since then, the market has begun to correct itself, helped by four interest rate rises, which have seen rates rise by one per cent over the year from 3.75 per cent in January to 4.75 per cent in this month.

Yet, despite the falling market, figures from the National Association of Estate Agents suggest prices will still end the year six per cent higher than last year.

Miles Shipside, commercial director of online property website Rightmove, said: "The first half of 2004 saw house prices rise further and more rapidly than they had in either of the two previous years.

"Asking prices had by July already risen by 14.7 per cent over just seven months, giving an annual rate of increase of 18 per cent. Halifax and Nationwide's data, based on their samples of mortgage lending, seemed to give a picture of an even more buoyant market, with annual rates of increase well over 20 per cent by the summer.

"Since the summer peaks, asking prices have now fallen by a modest amount, around 3.3 per cent, or an average of almost £6,500.

"However, the market remains lacklustre, with buyers reluctant to commit and low levels of activity."

The year has also seen dramatic changes in how mortgages are sold as part of Mortgage Day, or M-Day, when the industry became subject to statutory regulation for the first time.

The Financial Services Authority replaced the voluntary code of conduct - the Mortgage Code - as the industry's governing body, introducing new measures to protect customers, improve transparency and help them choose more easily between products.

This year has also seen the Government put plans in motion for Home Information Packs, where sellers will be required to produce a pack for prospective buyers containing documents such as surveys, searches and home condition report.

The controversial packs, which have generated praise and condemnation in equal measure, will be introduced by 2007.

Mark Chiltern, managing director of online broker Purely Mortgages, believes another defining characteristic of the year was the growth in equity-release products for the elderly.

He said: "2004 has seen the beginning of a new market - and one which will continue to grow in the future - as older homeowners use the equity in their properties to fund their retirement."

As the year draws to an end, many are already predicting what will happen in 2005, but opinions differ greatly.

The UK's largest lender, the Halifax, predicts house price falls of two per cent, according to Martin Ellis, its chief economist.

But the Halifax's major competitor, the Nationwide, is forecasting a rise of two per cent.

Meanwhile, property research company Hometrack predicts that prices will stay the same, with initial price drops of up to three per cent being countered by a strong recovery in the latter part of the year