I have been living in East London since the 1990s and seen quite a few things happening.
There was a readjustment in 2005 but then prices went up again.
Prices have come down a bit this year. People who don't need to sell are staying put so not so many nice houses for sale, lots of 'dogs' and ex rentals. So many reductions happen because the houses are not that good, but there are still people overpaying for big, nice houses. We monitor the local market carefully through houseprices.co.uk
There will be a further reduction in autumn and winter but this happens every year here, even in rising market the winter has always been a cheaper period to buy.
Part of the East London area is in a flux because of the Olympics in 2012 and also we have had a really big migration from Eastern Europe happening (incidentally, the people who bought my previous house were East European). There is demand for housing as it's cheaper for families to buy here rather than other parts of London. The thing I noticed is that since 2005 asking prices have been inflated as people got into the habit of offering 5-10 per cent off the asking price even if there was nothing wrong with the house. Some estate agents are honest about it, ours told us the market was not that dynamic and advised us not to put a huge asking price, we followed the advice and sold in two weeks and very close to asking price. House was spotless (completely redecorated). I'm only worried about the buyer's lower chain, but the sale is going through at the moment. It's hard to predict what will happen in London, lots of people come to London or are stuck here for various reasons, as I used to be.