Housing Minister Caroline Flint warned the Cabinet that "at best" prices are set to fall by 5%-10% this year.

She also briefed colleagues that housebuilding was "stalling", adding starkly: "We can't know how bad it will get."

The bleak assessment emerged when Ms Flint carelessly exposed a sheet of typed notes to photographers as she entered Number 10 for the weekly Cabinet session.

The document, headed "Caroline Flint - speaking notes", had a sticker attached which said "Papers for Cabinet meeting 13 May 2008". It pointed out that leading house price indicators were predicting reductions for the first time in recent years.

"Given present trends, they will clearly show sizeable falls in prices later this year - at best down 5%-10% year on year."

Ms Flint also expressed concerns over housebuilding - indicating that the Government could struggle to hit its target of building three million new homes by 2020.

"Housebuilding is stalling," she warned. "New starts are already down 10% compared to a year ago. Housebuilders are predicting further falls.

"Having seen net additions reach roughly 200,000 in each of the last two years, the figure for 2008-9 is almost certain to be well down on that."

The notes highlighted the rise in mortgage defaults, after figures last week showed that threats of repossession had hit their highest level since the early 1990s. But Ms Flint insisted that the number of actual repossessions was still only a third of that in 1991.