Homeowners are being warned not to panic as the property market flattens.
House price inflation has vanished in Auckland and is slowing in other main centres as loan-to-value restrictions, tighter bank lending criteria and a pre-election slowdown deter buyers.
In its latest Economic Overview report, Westpac economists said prices had fallen 4 per cent since January in Auckland and more weakness was likely to come.
"Combined with last year's tightening in lending restrictions and uncertainty ahead of September's election, rising borrowing rates have seen annual house price inflation slow to just 1 per cent," they said.
"That's a far cry from the double-digit rates of house price growth we saw over the past few years. We've also seen the number of house sales fall 25 per cent over the past year, and the number of unsold homes has been creeping higher."
The economists said there might be a rebound in house price growth after the election. But borrowing rates might still increase further and that would put pressure on affordability.
"For investors, increases in interest rates mean that the financial returns on housing assets – especially the potential capital gains – will look at lot less attractive over the next few years."
But Property Institute chief executive Ashley Church moved to reassure homeowners. He said what was ahead was "mostly predictable", and owners should not panic.
"House prices aren't going to collapse. While there may be small pockets of the country where prices drop a bit more dramatically, history shows that Kiwi house prices tend to settle, rather than drop, at the end of each boom.
"You need to go back to the mid-70s to find the last serious collapse in Kiwi house prices – and that was driven by a series of factors that simply aren't present in the current housing market."
He said, for people who were not planning to move soon, the price of their house was meaningless.
"Typically there can be as few as three years and as many as five years between Kiwi property booms – so if you're not moving house you can safely ignore the next few years and wait it out until the next one comes along. Which it will."
Those who wanted to move should try to time the sale of their house to coincide with the purchase of the next, he said. Those buying and selling the same market were less affected by house price movements.
"Unless you bought your current home in the last six months you've probably done better out of capital growth than any small variation in value caused by the softening market – but you can further minimise this by buying and selling at the same time. If you're selling for a little less – you'll also be buying for a little less."
Bindi Norwell, chief executive of the Real Estate Institute agreed it was not time for property owners to panic.
She said people were too quick to point to signs of a housing crash or owners ending up in negative equity - with mortgages for more than their houses were worth.
She said it was worth noting that median house prices for July increased in the majority of regions.
"So it's hardly time to start doom-mongering just yet. Four regions actually experienced record median prices in July highlighting that demand is still strong across significant portions of the country. The national median price increase by 3.4 per cent year-on-year to $518,000 and the national median price, excluding Auckland, increased 6.1 per cent to $415,838 year-on-year," she said.
"All of this has happened during winter, which is traditionally a very quiet period for real estate anyway, and we're in the middle of an election campaign which always causes people to take a 'wait and see' approach.
"When you throw in the school holidays, one of the wettest Julys on record and the impact of LVRs on first time buyers and banks' tightening their lending policies for investors, overall I think we've got a pretty healthy market."