The seemingly out of control housing market is being pegged back, with expectations of a greater fall in prices than previously thought.
Sold sign outside a house in East Auckland. File photo Photo: RNZ / Cole Eastham-Farrelly
The ASB bank is forecasting house prices to fall by 6 percent by the end of the year, bigger than the 2.9 percent drop it previously forecast.
Meanwhile, the ANZ bank is predicting a 7 percent fall.
It comes after the latest Real Estate Institute house price index for January showed a further slow down in price growth, with the number of houses sold falling sharply.
ASB senior economist Mike Jones said the wind was coming out of the housing market's sails.
"We've long been expecting a marked slowdown in house price inflation in this year, driven by the confluence of three major macro negatives - higher mortgage rates, tighter credit conditions and rising supply. These are now all in play.
"But the extent of the apparent credit constriction amounts to an extra handful of sand in the market's gears that we didn't previously allow for," he said.
Jones said the drop in house prices would affect some people's who have been using their growing paper wealth to back their borrowing.
He said the housing boom had played a critical role in the boom in consumer spending.
"The fact that boom now seems to have run its course I think does have implications for consumer spending going forward."
Jones said even if there was some recovery of house sales in February, demand was no longer running ahead of supply.
"Separate data from realestate.co.nz confirm new listings are finally trending higher. This, coupled with softer sales, means unsold inventory across the country is around 40 percent higher than the lows in mid-2021.
"This slackening in the market's supply/demand balance is eroding support for ongoing house price increases."