The decline comes despite 20% of postcodes registering an increase in prices over 2012, up from 12% in 2011.
Richard Donnell, director of research, said: “Compared to 2011, 2012 saw an improvement in the housing market with an increased proportion of the country seeing prices rise over the year.
“However the improvement in some areas was not sufficient to offset the impact of price falls which were recorded across 66% of the country.”
The net effect has been that average house prices have ended the year slightly down (-0.3%) in the 12 months to December compared to a 2.3% fall over 2011.
During December prices fell by -0.1% which was the sixth consecutive month in a row prices have decreased.
And the seasonal slowdown saw buyer registrations fall by 4.8% and property listings drop by 3.1%.
The time on the market and proportion of asking price achieved ended the year at 9.7 weeks and 93.2% respectively.
Prices in London grew across 70% of postcodes in 2012 which was up from 42% in 2011.
Across the rest of the country there has been a clear North South split in areas registering price rises over 2012.
In London the average time on the market is now six weeks compared to 6.5 weeks a year ago.
Donnell added: “During the year the London market has remained the consistent out-performer thanks to strong demand from overseas buyers and above average growth in higher value domestic markets.”
Improvements in this lead indicator have also been seen in the Midlands, Northern regions and South.
Prospects for the London market will have an important bearing on overall house price growth in 2013.
Prices in the capital are now 10% higher than they were at the peak of the market.
Donnell said he expects price growth in London to moderate over 2013 with prices rising by 2%.
Affordability constraints and an unwillingness by households to take on debt will continue to act as a drag on the housing market in 2013.
Hometrack expect transactions to total 912,000 in 2013 with the average household moving the equivalent of once every 25 years.