The growing unaffordability of housing is expected to take centre stage in the Reserve Bank's (RBNZ) next report on the economy, out Wednesday.
Every six months the central bank publishes its Financial Stability Report, probing the "soundness and efficiency of the New Zealand financial system". The previous report, published in May, saw the RBNZ "rattle the cage" over house prices, economist Cameron Bagrie told The AM Show on Tuesday, as they moved into an "unsustainable zone".
"The August Monetary Policy Statement came out point blank and said house prices were on an unsustainable trajectory, the Governor appeared before the Finance and Expenditure Committee and said the same. I think this document will up the ante."
The median house price in October was $795,000 according to the Real Estate Institute of NZ (REINZ), dipping from September's all-time high of $850,000. Despite the slight easing, prices in the year to October had risen more than 30 percent - more than a third outside of Auckland.
"When you see a 30 percent movement in house prices in 12 months you've got to raise your eyebrows in regard to what the trajectory is going to be like in the next 12-24 months," said Bagrie.
"House prices have continued to move up, but now we've got inflation turning up on our doorstep and interest rates are moving up, so a different trajectory I think for the housing market over the next sort of two-three years."
The official cash rate (OCR) rose for the first time in seven years in October. With banks following suit and upping mortgage rates, inflation rising and the RBNZ tightening its lending restrictions, Bagrie said regulators and banks are "stepping up to the plate" to rein things in before a crash becomes inevitable.
"The financial system is a pretty important part of your general economy, and you want it to be resilient. Most of the time it is, but of course when you go through turbo-charged house price cycles you can start to see raising points of vulnerability… Debt within New Zealand is about $500 billion - it's about 1.5 times the size of the economy."
The Financial Stability Report itself won't be thrilling reading, he said, because "it's not the Reserve Bank's job to alarm". But there will be one particular word to look out for.
"They will use terms such as 'vulnerability'... Does that mean the outlook for house prices over the next sort of two-three years is down? The answer is, we don't know. But what we do know is that it's a question of balance of risks."
Some indicators of housing affordability, such as employment, incomes and the falling proportion of interest-only loans, are actually suggesting house prices could keep rising, Bagrie said.
"It's not one-way traffic."
The October Financial Stability Report will be released at 11am on Wednesday.