Numis Securities, the investment banking and institutional stockbroking firm, predicts a bleak outcome for the UK property market.
City centre flats and new executive homes are likely to suffer the biggest price falls and the report describes the rise in buy to let property investment in recent years as a 'poor man's hedge fund'.
Analysts at the firm say that property prices are already 21% below their 2007 peak and they estimate that they are still between 17% and 39% over valued, based on a fair valuation.
However, the 1990's housing market slump saw prices dip below fair valuation levels and the firm therefore reckons that a further 55% decline could occur. 'We do not believe that the correction is anywhere near being over,' the report says.
'History has shown us that when property which has experienced a price bubble corrects the price tends to fall below fair value for a period of time as confidence in that market remains low. Prices could fall a further 40 to 55% if the over correction was a bad as the early 1990s in our view,' the report says.
Numis supports its argument with the expectation that house price falls will accelerate in the months ahead as amateur buy to let investors, some of whom have invested in over-priced city centre flats begin panic selling.
This could lead to a further drop in average property prices of £100,000 and if this prediction is fulfilled the average UK house price will stand at £96,000 when bottomed out.
The firm is also warning that the recession and Government policies to deal with the economic downturn could bankrupt the UK.
