Average asking prices of homes in the capital have fallen by 0.4 per cent in a year, the biggest annual drop since April 2011.
Average prices have fallen in 12 boroughs since last January, according to Rightmove's House Price Index, yet the average asking price for a London home is still £624,953, following a month-on-month jump of 2.6 per cent.
Inner London boroughs have seen house prices drop by an average of 2.1 per cent, with the biggest falls of 14.6 per cent in London's most expensive borough, Kensington and Chelsea, where average asking prices have dropped from £2.5 million to £2.1 million.
However, across the outer boroughs where house prices are typically cheaper - such as Havering in the east and Hillingdon in the west - modest price rises of 1.4 per cent show that demand remains strong at the most affordable end of the market.
Slow growth and falling prices across the market mean that over-priced homes listed for sale are being more quickly disregarded by house hunters.
More than 80 agents surveyed by Rightmove this month report their local market as price sensitive and that asking prices set more than a few per cent too high has a negative effect on interest levels.
"Perhaps we’re approaching the territory where many buyers are unable or unwilling to pay what sellers are asking, given the negative combination of rises in the cost of living, tighter lending criteria and a dose of Brexit uncertainty," says Miles Shipside, Rightmove director.
In the boom years leading up to 2016, when house prices were rising by up to 30 per cent a year, a house that was put on the market for five per cent more than it was worth would make its money back within a couple of months.
Now, buyers would have to wait more than two years to see a similar value added to their property.
"Some sellers may have thought there is no price to pay by starting high and reducing the asking price later," says Shipside.
"However, our extensive tracking of properties that have found a buyer shows that your property should substantially out-perform the level of interest in similar properties in your local area during the first three weeks of marketing to minimise the risk of being left on the shelf.
"Over-pricing loses you that vital initial interest and impetus, and buyers often have reservations about a property that has not sold as quickly as others, or has had a price reduction.”
Kevin Shaw, national sales director at estate agency Leaders, agrees: "Overpricing, particularly in a price-sensitive market, will result in the property sitting on the market until the price is dropped, losing the interest of buyers and ultimately achieving a lower price in the end."
James Sims, director at Brik Estate Agents in Fulham, reports that reducing the price of properties by two or three per cent significantly boosts interest from potential buyers.