The housing market has ground to a halt. Builders have downed tools. Estate agents are losing their jobs. Sellers are having to slash their asking prices to tempt buyers. Prices have fallen by 10.5 per cent in the past 12 months, according to the Nationwide building society, in the steepest year-on-year dive in 18 years. Nor is the top end of the market immune: Savills joined the chorus of doom yesterday, reporting that million-pound homes were also sliding in value.

Falling house prices are not wholly a bad thing. It cannot be good that so many people well into adulthood have been unable to afford homes of their own. The decline in prices has not been precipitous enough to make property easily affordable, but starting on the housing ladder is at least less daunting than a year ago.

The correction is also a lesson. After a glut of borrowing and consumption fuelled largely by rising property values, the current hangover will make lenders and borrowers think twice before repeating the mistake. Bluntly, bank losses, repossessions and bankruptcy orders should encourage wiser behaviour next time.

In normal times, then, a reversal in property prices after a prolonged boom would be healthy. But these may not be normal times. The economy is souring at an alarming pace. Jobs and dividends are being cut and business leaders are shelving capital investment plans. The danger is that the collapse in personal wealth levels tips Britain from a mere recession into something deeper and more prolonged.

The typical house in England and Wales fell in value by £4,662 to £164,654 in August alone - equivalent to £150 per day. For people who regard their homes as ultimately their main pension pots, that is a sobering statistic. Fortunately, not everyone monitors monthly changes in the Nationwide index before deciding whether to shop at Waitrose or Aldi. If they did, the howls from retailers in recent weeks would have been even louder. Britain is not yet in a state of economic meltdown. With luck, the inflation threat will have receded far enough in a few months to allow policymakers to start cutting interest rates to ease the economic pain.

Meanwhile, calls for Gordon Brown to intervene in the housing market are growing shriller. Proposals emerged yesterday to make it easier for councils and housing associations to step in to help homeowners on the brink of repossession. Another notion already floated by the Government is that stamp duty on purchases of residential property should be abolished or at least temporarily suspended.

There is no doubt that the duty is iniquitous. It rewards inertia and curbs labour mobility. And it is badly structured, creating costly market inefficiencies at threshold price points. But, for now at least, Mr Brown cannot afford to scrap it. The tax brought in £6.5 billion last year - equivalent to two pence on income tax. With housing transactions, and therefore the tax take, dwindling, that is a sum the Treasury can ill afford to lose.

What Mr Brown can do, however, is to clarify the situation beyond all doubt. The stamp duty suggestion has had the perverse effect of intensifying the paralysis in the housing market. Buyers with the luxury of time have one more reason to procrastinate if they think a tax cut could be imminent. For buyers of expensive homes the duty is a serious consideration, adding £20,000 to the cost of a £500,000 property. More than half of 1,200 polled estate agents say that they have lost at least one sale as a result of the uncertainty.

Ministers can do little about the chill gripping the housing market, nor should they. The current correction is painful but inevitable, and does not yet warrant government intervention in ways more likely to hurt than help.