Housing crisis: Price falls coming, but 'nothing compared to' how much they've risen - economists

House prices will likely fall this year, according to a new economic forecast - but probably not by enough to please would-be first-home buyers.

Prices have gone up more than 20 percent in the last year, fuelled by a shortage of supply and low interest rates. 

March saw record prices across most of the country, according to data from the Real Estate Institute of New Zealand released on Thursday, rising more than 50 percent in just 12 months in some regions. The median increase was 24.3 percent, rising to $826,000. In March alone, the median went up $46,000 - more than a person working full-time on the minimum wage makes in a year. 

But the party for property owners could soon be over. Infometrics' latest forecast, released Friday, picks the market might finally be tamed. 

"We're yet to see it in the data, but we're expecting a significant drop-off in investor demand to purchase property to start coming through in the numbers over the next few months, and certainly much more reluctance in terms of the price that investors will be willing to pay for property," Infometrics chief forecaster Gareth Kiernan told Newshub. 

The cause? Recent changes to loan-to-value ratio restrictions from the Reserve Bank, requiring most investors to stump up deposits of at least 40 percent before they can get lending, and the Government's decision to stop investors from reducing their tax bill by writing off interest expenses.

Infometrics says this will reduce the amount of profit investors can make from rentals. 

"As a result we are expecting some downward pressure on house prices. But given that house prices have surged more than 20 percent over the last few quarters, the price easing we're expecting of a couple of percent over the next six months or so is nothing compared to that."

While many landlords have threatened to hike rents in response to the tax changes, which will be phased in over four years, the Government and some economists - such as those at property industry analysts CoreLogic - says they'll be constrained by the market and what people can actually pay. 

Rather than a "turnaround" or "correction" in house prices, Infometrics expects they'll stabilise - which is what happened when the UK introduced similar tax changes in 2017

Anecdotal evidence from real estate agents and economists suggests fewer investors are turning up to auctions and open homes, and are rethinking future investment in property. 

The tax changes don't apply to new builds - the Government hoping this will see more money flowing into building new dwellings. But it might not be that simple, Kiernan warns.

"If anything, we expect to see demand shift towards new dwellings, although meeting that demand immediately will be difficult given the lack of spare capacity in the residential construction industry."

Elsewhere in the forecast, Kiernan said there remain tough times ahead for the tourism industry, even as the quarantine-free bubble with Australia opens. 

"Even by March 2023, we only expect tourist numbers to New Zealand to be at 58 percent of their pre-pandemic peak," he said - and that assumes our vaccine rollout has pretty much everyone immune to COVID-19 by the end of 2021.

The constraints will be "reduced airline capacity and the loss of previous routes, higher ticket prices, and more complicated and uncertain travel requirements", such as sudden border closures in Australia leaving holidaymakers stranded.

But for now, the bubble will likely help the New Zealand tourism industry more than Australia's.

"Given that Australians don't have any other options for overseas travel, we do see that being something of a positive for New Zealand. There's obviously around about five times more Australians than New Zealanders, so the potential for that net impact in terms of Aussies coming here versus Kiwis heading over to Australia for a holiday could well be beneficial to our economy."

Much rests on getting everyone vaccinated soon, however, and getting the borders to the rest of the world opened by year's end. 

"If that doesn't occur that is going to have negative implications into 2022."