An economist is picking house price inflation to fall steeply this year, saying inevitable interest rate hikes could lead to downward pressure on house prices in the next few years.
Westpac chief economist, Dominick Stephens said the latest data released from the Real Estate Institute on December sales showed there was no doubt the housing market was slowing.
The bank was forecasting 6.5% house price inflation this year, compared with almost 10% last year.
Mr Stephens said the inflation figures released on Monday had sealed the case for the Reserve Bank to raise interest rates, and the only question was when it would happen.
"What we've seen in the past six months is a big increase in fixed mortgage rates and, probably, a developing expectation that short-term mortgage rates are about to go up," he said.
"We've also seen the Reserve Bank restrict banks' ability to lend to people with small deposits."
The two had combined to crimp house sales, and Mr Stephens believed they would also crimp house prices.
"House prices are generally rising across New Zealand at the moment and generally it takes a few months for a downturn in house sales to really translate into a slowdown in house prices," he said.
The housing market was "a slow ship to turn" but he believed prices would fall later this year.
He also expected mortgage rates to end up quite high mid to late this decade as a result of pressures from the Canterbury rebuild, and said that could well decisions on whether to rent or buy.
"So I think at that 2016-type horizon, there's a real possibility that house prices could be falling," Mr Stephens said.