The Real Estate Institute's house price index shows sales activity has fallen 18.3 percent on a year ago. Photo: RNZ / Nate McKinnon
A turnaround in the current housing market slump is unlikely until the middle of 2023, as ongoing inflation is expected to drive fixed mortgage interest rates higher.
The Real Estate Institute's (REINZ) house price index, which measures the changing value of properties, fell 5.8 percent in the year ended August, compared with a 2.9 percent drop in July.
Most economists expected to see further declines, before prices begin to recover.
Sales activity also fell 18.3 percent on a year ago, with 4891 transactions.
Infometrics economist Joel Glynn said the drop in the number of sales probably reflected a willingness on the part of sellers to wait until they get their price.
However, he said they may have to wait awhile as a turnaround in the market was not expected until the middle of 2023 at earliest, depending on when the Reserve Bank was able to get inflation under control.
It could take some time for that to happen, with the annual rate of inflation currently at 7.3 percent, Glynn said.
The Reserve Bank was committed to raising the official cash rate until inflation begins to head back to within its target range of between 1 and 3 percent, he said.
By then, fixed mortgage rates would likely be sitting at about 5.9 percent and were likely to remain at those levels for 18 months to a couple of years, Glynn said.
On that basis, he said house prices were expected to recover in 2024, but the recovery would likely be more gradual as the market would have added thousands more homes by then.
"By about September or December 2024, we'll be back to making positive price gains sort of on an annual basis," Glynn said.
"And then we do have a bit of an expectation of a plateau out for the next three years after that."
A Kiwibank report said house prices had further to fall in the near term, and expected them to be 13 percent down by the end of 2022, followed by a modest recovery.
"The run of play in the housing market continues largely in one direction."
ASB economist Nathaniel Keall said the housing market correction was proceeding at an orderly pace.
"There's no 'smoking gun' to say the market is on the turn with activity measures looking decidedly mixed."