An economist says the drop in house prices is a correction of the huge rise following the COVID-19 lockdown until November 2021, as the market slowly starts to return to normal levels.
House prices dropped again in May, with the Real Estate Institute of New Zealand (REINZ) finding they were down 4 percent in May compared to April.
Despite the drop, however, REINZ said house prices are still up 2.4 percent annually from $820,000 in May 2021 to $840,000 in May 2022.
Economist Tony Alexander told Ingrid Hipkiss on Newshub Late it's a correction from the "totally ridiculous" soaring house prices after the COVID-19 lockdown in 2020.
"Even with the falls we have had so far… It's really only putting the bulk of the country back to where it was in the middle of last year," Alexander said.
He said people who bought houses in the middle of last year are hurting the most by the falling house prices.
"Those people who were most gripped by FOMO, the fear of missing out, towards the middle of last year or the latter part of 2021, who have bought at the top of the market and are now seeing themselves with the house price falling," Alexander told Newshub Late.
He said the credit crunch initiated by the Reserve Bank's official cash rate hikes and the Government's changes to the Credit Contracts and Consumer Finance Act (CCCFA) is driving buyers to step back - causing prices to fall.
"Once the buyers start stepping back, the prices fall a bit and the FOMO completely disappears and now people are worried that prices will keep falling.
"The buyers are on strike," Alexander said.
He said he expects prices to continue to fall, on average, by between five and 10 percent by the middle of next year.
"Basically the market is still sliding away for the moment."
His advice for people who bought a house in the peak and are worried about the drop in prices is to not look at their house evaluation every month, as the majority of people won't be buying and selling a house within the space of six months to two years.
"My advice to people would be don't look. Remember you bought the place to occupy it for probably a good number of years."