Housing changes announced by the Government are likely to dampen the market, but there's low probability of the market crashing, economists say.
Investment properties acquired on or after March 27 are subject to a 10-year bright-line test and will have interest deductibility removed from October 1 - phased in gradually over four years. Property investors have spoken out, saying higher expenses will force them to hike rents.
Westpac acting chief economist Michael Gordon said tilting the balance in favour of owner-occupiers could see house prices fall 10 percent, a calculation of a fall in willingness to pay. A drop in foot traffic at certain open homes week-on-week is an early indication of cooling investor demand.
Cameron Bagrie, economist at Bagrie Economics, says as household debt servicing costs are at record low levels, there's "low probability" of a crash, where the property market is weak for a number of years.
That would require a "big burst of inflation" causing the Reserve Bank to raise interest rates, which in the short-to-medium term, the Reserve Bank is using a number of tools to keep low.
"Those real corrective crash phases - that will require an almighty lift in interest rates, at the moment, it's not a scenario that too many people are putting on the table," Bagrie says
Economist and property spokesperson Tony Alexander agrees, noting none of the factors that could cause a severe correction are present.
"It would take an extended period of price gains bringing a boom in new supply, then a substantial lifting of interest rates in the order of plus 4 percent, plus a recession in the economy with rising unemployment," Alexander says.
Bagrie expects the housing changes to have an effect on house prices. But after a year of record gains, it's important to put that in perspective.
"The combination of the Government and the Reserve Bank - they are going to dampen the property market," Bagrie says.
"I think the market's going to give up some of the gains… the market was up 20 percent last year, takeaway 10 [percent] it's still up 10," Bagrie adds.
Infometrics expects reduced investor activity following the housing announcement. This, along with reinstated loan-to-value restrictions and potential new limits on interest-only lending, will contribute to slower house price growth.
"However, given the housing undersupply remains and low interest rates will support housing attention and activity, we see there to be a less likely chance of house prices falling," senior economist Brad Olsen says.
Barfoot and Thompson managing director Peter Thompson told Newshub any impact on prices is unlikely to appear in the market until May or June.
Monthly sales figures, including average days to sell will be among the telling evidence of exactly what impact the housing announcement has had on the market.
"What we'll be looking for is the monthly shift in house prices from REINZ over April to June," Bagrie adds.