Home prices around the country are expected to slump further next year, for the first time repeating a consecutive decline not experienced since the 1950s.
At the same time, the perception remains that banks are yet to fully pass on the benefits of Reserve Bank interest rate cuts of recent months, keeping some buyers restricted from entering the market.
The Reserve Bank has knocked 3.25% off the interest-driving official cash rate since its July peak of 8.25%, while the variety of bank mortgages on offer has fallen by about between 2.1% to 3.15%.
Home price declines in 2009 are expected to ease back from the 8% lost in 2008 to an about 5% drop, Westpac chief economist Brendan O'Donovan said.
"We expect house prices to continue falling in 2009, but at a less vicious pace of minus 5%," Mr O'Donovan said.
He described buyer and seller sentiment as a "Mexican standoff", with sellers expecting last year's prices and buyers concerned about the likelihood of falling prices next year.
"So both are reluctant to transact," Mr O'Donovan said.
Mr O'Donovan said there was a "perception fostered by the Reserve Bank that banks were not passing on as much savings as they could".
As with other central banks around the world, the Reserve Bank has made unprecedented rate cuts to cushion the effects of recession and attempt to kick-start flagging economies.
Westpac's fixed mortgage rates were down by 2.85% for six-month loans, 3.15% for one-year, 2.85% for two-year, 2.45% for three-year and 2.10% for five-year terms, while its floating rate had fallen by 2.80% to 8.15%.
He noted there were "counter influences", such as retail deposit rates which were not coming down and increased wholesale funding rates for banks to contend with.
"House prices are falling and [subsequently] securities are reduced and with unemployment climbing, serviceability of loans is under scrutiny," he said.
"At present it's a far riskier environment," Mr O'Donovan said.
The New Zealand and Australian banking sector was different from those sectors in the United Kingdom and United States, where the latter's 30-year mortgage rates had been about 6%-6.5% and the Federal Reserve had pushed that rate down to about 5.3%.
"New Zealand has not had the capital destruction seen in the overseas banking sector," Mr O'Donovan said.
In a separate ASB housing survey for three months to October, chief economist Nick Tuffley said expectations of lower house prices during the next 12 months had fallen from 55% of respondents expecting a decline to 44% expecting a fall.
"Price expectations continue to point to further weakness in the housing market in the months ahead," he said.
The number of people believing now was a good time to buy had increased from 37% in the three months to July to 45%, during the months to October.
"An expectation for lower interest rates is likely to be feeding into the belief now is a good time to buy a house," he said.
Mr O'Donovan said statistics for the three months to November had Quotable Value registering a 6.6% decline in prices and the Real Estate Institute of New Zealand recording a 4.8% median price decline.
"Both measures tend to understate the true pace of decline, which is why we think prices actually fell about 8% this year,' Mr O'Donovan said.
