The predicted slide is a near doubling of previous expectations, as the bank predicts deepening gloom for the housing market.
The UK's biggest mortgage lender revealed its forecast in an update on trading ahead, where it also said that write-downs amid the credit crunch had risen by £58 million to £1.03 billion since the end of March.
Today's forecast for house prices marks a steep decline from the bank's previous estimate for "mid-single digit" declines in 2008.
HBOS said its revised prediction reflected the UK's slowing economy, a rise in unemployment and limited scope for interest rate cuts amid soaring inflation.
Arrears levels for borrowers falling behind with repayments have risen to 1.89 per cent of total mortgages from 1.67 per cent at the end of December.