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House prices could fall by 10% before market bottoms out

House prices could still fall by further 10 per cent before the bottom of the market is reached, an economist has told the Treasury Select Committee.

Imperial College London professor of finance David Miles said economic models suggested that if interest rates stayed the same and prices fell by a further 5-10 per cent – meaning property would have lost around 20 per cent of its value from its peak – then the housing market would stabilise.

He said that if this happened transactions could pick up again "quite sharply".

But Professor John Muellbauer, of Nuffield College, told the committee house prices would need to fall by 25 per cent from their peak in mid-2007 to have a big impact in bringing first-time buyers back into the market.

He said he thought the UK market was about halfway through its house price correction.

Council of Mortgage Lenders head of research Bob Pannell said the bank measures introduced over the last week would "not necessarily themselves kick-start or stabilise the housing market".

He said: "We may need specific measures targeted at the housing market."

Mr Pannell added that he still looked forward to the recommendations of the Crosby Report on the mortgage market, which should be made public shortly after being delayed in the face of the recent financial turmoil.