1:37pm UK, Saturday June 19, 2004

House prices are set to fall by an average of 20% during the next three years as the booming property market corrects itself, a research group has claimed.

180 construction worker building property housing

Property values heading down

Capital Economics said it expects prices to rise by a further 5% to 6% by the end of this year before beginning to fall next year.

Ed Stansfield, property economist at Capital Economics, said: "The boom has run on for too long and prices are significantly above what is sustainable."

He added that he expected prices to fall regardless of what happens with interest rates and the wider economy. 

But he did not expect the fall to be as bad as the crash experienced during the early 1990s. 

This time the fall in prices was likely to be spread evenly over three years and most people would be "completely unaware" of the downturn. 

The group expects price falls to be worse in the north where it says property looks most overvalued in comparison with earnings. 

It is expecting falls of between 25% and 27% in the North, North West and Wales with 20% in London and the South East, and lower falls in Scotland and Northern Ireland.