House prices are expected to hit bottom in March, and could fall to as much as 25 per cent down on boom levels, according to Treasury's pre-election report.
Bad news for homeowners is that when the low point is reached, prices are expected to remain flat for at least the next two years.
The pre-election fiscal update said nominal house prices were expected to fall by a total of 11.3 per cent by March 2009, after peaking in December 2007.
"Prices are expected to remain essentially flat from mid 2009 until late 2010, when they will start to increase again," the report said.
In its worst-case scenario - which would see the economy hit with a deeper recession caused by a longer slowdown in the US and Europe - the Treasury predicted nominal house prices could fall as much as 25 per cent.
Property analyst Kieran Trass, of Suburb Watch, surprised many in the real estate industry last year by predicting big falls in prices that would end the property boom.
He told the Herald last night he thought the Treasury estimate was conservative.
"Some suburbs in Auckland are down about 10 per cent already. Their estimate of 25 per cent is a lot closer."
Mr Trass also doubted predictions that house prices would begin to climb again in 2010. He said the market had been increasing for a long time so would "go down for quite some time".
"If anything ... we are in a tougher market [compared to] past slumps."