Housing data this week showed a resurgence in house prices, up 6% nationally, but in Otago they rose 18% on October last year and Southland gained 8.5%, according to the Real Estate Institute of New Zealand.
Since the ANZ announced a one-year fixed 3.95% mortgage rate last week, competitors ASB and Westpac have matched that rate, while the BNZ has a two-year fixed-term rate of 3.99%.
Borrowers refixing mortgages in recent weeks would likely have been offered even lower rates by their banks, rather than risk losing customers to competitors.
Westpac chief economist Dominick Stephens said the "clear evidence" was that the most important driver of house prices at present was mortgage interest rates.
"House sales are a fairly reliable guide as to the short-term outlook for prices," he said.
The lift in market turnover in October was a good indicator that house price inflation "was set to accelerate further", Mr Stevens said.
"The acceleration is coming from Auckland and Canterbury, which have shifted from slightly falling to slightly rising house prices, and from Otago and Southland, where house prices are rising fast and accelerating," Mr Stephens said.
REINZ's regional commentator in Dunedin, Liz Nidd, said buyer demand remained high in Dunedin and although some investors were selling, because of an increased regulatory burden, owner occupiers were taking up any slack left by their exit.
"The much publicised all-time low interest rates of 3.95% being offered by the big banks will have some bearing on what happens over the next few months," she said.
Having for months been short of listings, Mrs Nidd said in October there were 269 new listings, boosting the overall number to 349, following the low of 270 listings in August.
Last week, the Reserve Bank kept the interest-driving official cash rate (OCR) at its record low 1.75%, where it has sat for two years, indicating it was unlikely to move until well into 2020, which is the consensus of most economists.
However, Mr Stephens believed the present housing market upturn would be "short-lived".
He said the wholesale fixed interest rates had risen "quite sharply" during the past fortnight, which should at least arrest the decline in banks' fixed mortgage rates, if not reverse it.
"We remain convinced that that mortgage rates will eventually rise significantly."
Once rates "rose significantly", Mr Stephens expected the housing market to be "severely impacted", but that would not be until the 2020s.
"We're forecasting falling house prices in the early 2020s," he said.
Another issue to consider concerning long-term house prices was government policy.
Although there was no evidence the October 22 ban on foreigners buying existing houses had had any effect, Mr Stephens said.
"However, we do believe the ban will have a bearing on house prices eventually."
There were changes under way for next year concerning tax deductions for property investors, and if a capital gains tax were to be introduced, that would have a "large impact" on house prices, he said.
