The housing market is in for a "pronounced and overdue slowdown", with national house price inflation forecast to fall to about 5 per cent a year, says one of the world's top three credit rating agencies, Fitch.
"Affordability pressures and tighter regulation" of lending ratios, along with some progress on housing shortages, will drive the change.
Fitch includes the New Zealand prediction in a wider statement, predicting Australia, China and New Zealand - the three "hottest" retail estate markets in the Asia-Pacific region at present - are all about to experience a marked slowdown in house price inflation, although it is not forecasting house prices falling across the board.
"Demand for housing in New Zealand remains strong, particularly in Auckland and surrounding areas, but we expect nominal house price growth to slow to 5 per cent nationally on affordability pressure and tighter regulation," says the statement, attributed to Fitch senior analyst Dan Martin.
"Measures of relative home price expensiveness have deteriorated more in New Zealand since 2010 than in any other country covered by our report.
"New Zealand also had the largest regional price-growth disparity over the last four years, with a difference of over 80 percentage points between Auckland, where prices increased by some 76.3 per cent, and those on the West Coast, which saw prices fall by 5.1 per cent over the same period."
The report says unsustainably pricey housing is common around the world, and that central bank controls, such as the loan-to-valuation ratio restrictions used in New Zealand, "are being overpowered by a fundamental excess demand for home purchases".
Of the six Asia-Pacific markets Fitch covers, "only Singapore is expected to see house prices fall".