House prices 'may fall 15% by 2008'

House prices may fall by up to 15 per cent during the next few years, economists warned today.

Experts at PricewaterhouseCoopers said prices were overvalued and could fall by between 10 and 15 per cent during the next four to five years.

But their report added that the fall was unlikely to be as bad as the crash seen during the early Nineties and would not be accompanied by a recession.

The group said the UK housing market had shown "surprising strength" over the past year, and prices were currently about 20 to 40 per cent above their long-term average relative to incomes and rents.

It said some of this could be explained by falling interest rates boosting demand, combined with slower growth in house-building since the early Nineties.

But it added that there was still a significant degree of unexplained overvaluation and warned that the "speculative frenzy" seen in past housing market booms appeared to exist now in the buy-to-let sector.

Rising interest rates combined with people leaving the buy-to-let market could cause prices to start falling, the report said.

John Hawksworth, head of macroeconomics at PwC, said: "House prices do seem overvalued at present."