House prices could fall by a further 5% to 10% before the bottom of the market is reached, an economist said today.

David Miles (pictured), Professor of Science at Imperial College London, said economic models suggested that if interest rates stayed the same and prices fell by a further 5% or 10%, meaning property would have lost around 20% of its value from its peak, then the housing market would stabilise.

Appearing before the Treasury Select Committee, he said that if this happened transactions could pick up again "quite sharply".

Prof Miles said people's expectations of what house prices would do was a "dominant factor" in the housing market, and was probably even more important than the availability of mortgage finance.

But he said that, at the moment, buyers and sellers were unable to agree prices because of expectations that property values would fall further.

He said: "There is a stand-off in many parts of the country between people who have got a house to sell and people who have got mortgage credit, and they cannot agree on a price."

He said this situation made it very difficult to assess when prices might bottom out.

Bob Pannell, head of research at the Council of Mortgage Lenders, said that, despite rising unemployment, the group still expected the number of homes repossessed during 2008 to be 45,000.

But he admitted that going beyond 2008 there was likely to be "further upward pressure" on repossessions.

Fionnula Earley, Nationwide's chief economist, stressed that repossession levels remain low by historical standards.

She added that the increase was generally confined to specialist areas of the market, where borrowers were likely to have been more stretched.

Mr Pannell also played down the impact of higher mortgage costs as people come to the end of fixed-rate deals taken out two to three years ago.

He said new rates were only around 1% or slightly higher, and the situation was not as dramatic as some people had presented it as being.

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

He added that he thought we were about halfway through the house price correction.

Mr Pannell said the bank measures introduced over the last week would "not necessarily themselves kick-start or stabilise the housing market".

"We may need specific measures targeted at the housing market," he said.

He 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.

When asked whether other building societies felt resentment after being left out of recent measures to help lenders, he said: "The sheer practicality of needing to act quickly" has meant "common sense said choose the core banks and building societies in the country".

He added: "I think the reality is that a number of the eight have significant wholesale funding obligations."

He thought these were an "essential ingredient" in the selection of some of them.

Prof Miles added later that the figure of further 5% to 10% falls in house prices before the market bottoms out could become "much smaller" if the cost of funding fell by a further 50 basis points.

"The calculations are pretty sensitive to even small changes in the cost of funding," he said.

Prof Muellbauer said current house price and stock market falls would affect consumer spending.

He said it was estimated that for every £100 lost on the stock market consumption would eventually fall by £2 and for every £100 lost on the housing market consumption would fall by £3 in the UK.

But he said that, because the stock market had taken a "much bigger beating", its effect would be greater.