Housing confidence continued to decline for the three months to January, while house price expectations rose in most areas and expectations of bank interest rate rises dwindled, according to ASB chief economist Nick Tuffley.
Auckland and Christchurch have the highest expectations on house pricing.
"House price expectations increased in most regions, with expectations of price increases now very high in Christchurch," Mr Tuffley said in a statement.
The ASB Housing Confidence Index fell by four points during the quarter, with a net 20% of respondents now saying it is a good time to buy a house, compared with 24% from the previous quarter.
Mr Tuffley said that after slipping in the previous three months, house price expectations were now higher in almost all regions, in particular in Christchurch, where there was a continued improvement in expectations.
The city's house price expectations were now the highest in the country.
"This suggests underlying housing demand in the region is recovering. Indeed, data for November and December 2011 show that on a seasonally adjusted basis, turnover in the Christchurch housing market rose to levels not seen since late 2009," Mr Tuffley said.
Outside Christchurch, price expectations remained elevated in Auckland but weak around the rest of the North Island and South Island, Mr Tuffley said.
There had been an increase in housing market activity, with increasing turnover, reflected in dwelling sales up almost 21% for December compared with a year earlier, he said.
However, the housing market still appeared to be constrained by supply, showing a decline in new listings, Mr Tuffley said.
"The general tightening in the housing market shows signs of feeding through into a recovery in house prices," he said.
For the year ahead, Mr Tuffley expected "modest" growth in prices, underpinned by continued low levels of new listings.
"Low levels of housing inventory have started feeding into higher prices, especially in the Auckland market.
"We expect this moderate price appreciation, about 3% a year nationally, to continue over 2012," Mr Tuffley said.
Most analysts now believe the Reserve Bank will keep the interest-driving official cash rate (OCR) at the record low of 2.5%, until at least the end of the year.
Mr Tuffley said the number of respondents expecting interest rates to rise during the next 12 months fell during the quarter; 44% now expect interest rates to rise, down from a net 57% in the October quarter.
"This isn't surprising in light of the benign outlook for domestic inflation and concern over Europe and the global economy.
These factors have reduced the chances of the Reserve Bank increasing the OCR any time soon," he said.
