House prices and subsequent revaluations during that period had risen by more than 100% in many areas of the country, but they tumbled when the United States sub-prime mortgage fiasco unravelled, the global financial crisis took hold and recessions struck most countries' economies.
Figures from the Real Estate Institute of New Zealand this week showed a 13.8% gain on house sales in April, up 689 to 5676 nationally, and although the median price declined $5000 to $365,000, that followed a record figure of $370,000 in March.
While the Central Otago Lakes region recorded the highest lift in prices from March to April, up 19.0% to $479,000, Auckland's performance is being most closely watched after a gain of almost 6% in prices during the past year.
They are now near their peak nominal levels of 2007, Reserve Bank Governor Alan Bollard said in the bank's six-monthly financial stability report, released this week.
Because of high household indebtedness, any sharp declines in house prices remained a "key financial stability risk, Dr Bollard said.
"Even if confidence becomes strong, many homeowners already have significant debt loads that make it more difficult to trade up, and banks may not be willing to expand lending to the sector at fast rates in the current funding environment," Dr Bollard said.
House prices may continue to rise in the short term, but Dr Bollard said "they seem unlikely to develop the sort of momentum seen over the 2002-2007 period".
ASB economist Jane Turner said recent Reserve Bank announcements suggested the bank was "comfortable and unconcerned" with the recent stimulation in housing market activity and house prices, it did not expect the lift in prices to be sustained.
"This suggests the Reserve Bank shares our view that reconstruction activity will help alleviate some of the pressure in the housing market. It appears the Canterbury rebuild is on track to start around mid-year," she said in a statement.
Dr Bollard said the housing market had started a return to more "normal levels", in part spurred by lower interest rates - the interest driving official cash rate (OCR) set by the Reserve Bank remaining at a historic low of 2.5%.
Ms Turner held the view of many economists, that the Reserve Bank was "unlikely" to cut the OCR, predicting it would be held unchanged at 2.5% until March next year.
