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However, houses price declines may be offset by the cost of rising interest rates and Infometrics chief forecaster Gareth Kiernan is warning of a looming ''significant degree of financial stress'' for heavily indebted homeowners.
''People that have heavily leveraged themselves to purchase property, most particularly in Auckland and Queenstown, are likely to find that increasing debt-servicing costs cause a significant degree of financial stress,'' he said in a statement.
When comparing house prices to incomes, Dunedin has been singled out as one of the most affordable cities in the country, but Queenstown recently surpassed Auckland as the least affordable, according to Massey University's home affordability report.
Mr Kiernan said the ''dichotomy of Queenstown'' housing stock was changing, between numbers of property owners, those renting and those living there.
''With the population increase in Queenstown over the past couple of years, it is moving away from being a resort town to being a more general place to live,'' he said, when contacted.
Mr Kiernan expects overall New Zealand house prices in December 2017 to be sitting 2.7% below their level in December last year.
''The emergence of flat or falling house prices within the next few years will undermine consumers' willingness to spend, while the discretionary portion of households' budgets will be squeezed as interest rates gradually rise from their historic lows,'' Mr Kiernan said.
To put that household budgetary squeeze in perspective, Mr Kiernan said for an Auckland homebuyer who bought an average-priced house with a 20% deposit, an increase in mortgage rates from 5% to 6% would add almost $200 to fortnightly repayments, on a 25-year mortgage.
''Surging house prices have driven household debt levels to record highs, and it seems that some of the cautionary lessons learnt during the global financial crisis are already being forgotten,'' Mr Kiernan said.
The result of the financial squeeze on households would be persistently weak growth in household spending from 2018 to early 2021, and per-capita growth nationwide would hold below 1% pa throughout this period, Mr Kiernan said.
''These effects will be particularly acute in Auckland, where house prices are highest,'' Mr Kiernan said, and ''also to some degree in Queenstown''.
There had been a ''safety net'' of rising house prices which encouraged developers to push ahead with new projects, safe in the knowledge possible building cost overruns would be covered by higher sale prices at the end of construction, he said.
''But with the wind having been taken out of the housing market's sails, that financial buffer looks to be less assured,'' Mr Kieran said.
Infometrics' residential construction forecasts saw the total annual new dwelling consents slipping back from its current level of 30,162 houses in the year to February to below 29,000 in the March 2018 year, Mr Kiernan said.
Against a backdrop of a revised forecast for 2017 inflation, up by 0.2 percentage points to 1.7%, Mr Kiernan, said the Reserve Bank was likely to begin raising the official cash rate by the middle of next year.
''But these OCR increases will only be gradual, as ongoing elevated levels of net migration and high labour force participation will prevent capacity pressures getting as out of hand as they did in previous business cycles,'' Mr Kiernan said.
People could adapt to the rising mortgage rates by re-entering the workforce or taking on additional hours ''to boost their income shape''.