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Londoners should wait at least two years before buying a house as the market will not recover until 2011, says an industry report.
Prices will continue to fall next year and will not start to improve until a year after that, according to independent analysts Oxford Economics.
The average price in London will drop 16.1 per cent this year, then a further 3.4 per cent next year.
They will then recover strongly, with rises of 2.1 per cent in 2011, 8.9 per cent in 2012, 10.7 per cent in 2013 and 7.4 per cent in 2014.
The report to the National Housing Federation claims the average price will rise to £354,900. This is an overall rise of 27.7 per cent from today, but more than 40 per cent up on the lowest prices to be seen at the end of 2010.
The NHF warns that some home-owners in the capital who bought during the peak of the market are likely to remain in negative equity throughout all or most of the period covered by the research.
An average property in London, bought last year for £331,500, will still be worth less in 2013, at £330,600.
The report notes that much of London's economy is made up of the financial and professional services sector, and that the capital is expected to go from being the strongest performing UK region in 2007 and 2008 to the worst in 2009 and 2010. However, the research says London's uniquely qualified workforce should prove adaptable to the global economy's requirements as growth returns. It also expects the 2012 Olympics to provide "a welcome boost".
For all England, the report also expects prices to fall - by 12.2 per cent this year and a further 4.6 per cent next year before stabilising in 2011 with a 1.1 per cent rise.
They are predicted to increase 7.5 per cent in 2012, 8.4 per cent in 2013 and 6.8 per cent in 2014. Average prices at the end of the period will be £38,000 higher than this year's forecast of £189,800.
The price rises from 2011 will be the result of the recession because, while demand is growing, supply of new housing is falling - with only about 60 per cent of the new homes needed being built per year.
The NHF predicts five million people could be on council housing waiting lists by next year.
Chief executive David Orr said: "While house prices are falling in the short term, they will inevitably increase in the long term because of under-supply of housing.
"Until lending is freed up, young and lower income households without access to large deposits will be locked out of the market."
Reader views (2)
Graham: did you not notice that there has been a property boom and crash in the Netherlands? Like many prophets of doom you might end up with egg on your face.
- Dectora, London UK, 04/08/2009 18:02
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The UK housing market won´t recover until you get in line with the rest of Europe. UK property is STILL over-priced.
- Graham Rodhouse, Helmond, Netherlands, 03/08/2009 12:25
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