Prices must drop 20% to sustain property market

House prices would need to fall by 20% to put the housing market on a stable footing, according to Capital Economics.

Last week, Nationwide Building Society’s latest house price index showed that property values fell by 0.7% in October, with the average house price now £164,381.

Ed Stansfield, chief property economist at Capital Economics, says the fact that house prices appear to be on their way down after the past year’s unexpected surge should not be a surprise.

He says: “Not only is the market overvalued on most measures, but house price falls are consistent with the drop in buyer enquires and mortgage approvals we have seen in recent months. They also square with reports that lenders have begun to tighten credit standards again.

“We believe that to put the market on a more sustainable footing, prices need to drop by about 20% from their latest peak.”