ASB Bank is forecasting a 6 per cent drop in national house prices this year, in the face of a deteriorating labour market, falling net migration and rental declines.
But the bank expects the property market to get back to current levels next year, on the back of cheap credit and a gradual recovery in the labour market.
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Senior economist Mike Jones said March pricing data had confirmed that the New Zealand housing market had "barrelled into lockdown" with a full head of steam.
With annual price gains in the month of up to 9.3 per cent, most regions had benefited and some were well into "boom" territory with March reflecting a cyclical peak.
Jones noted that indicators of tightness in the market in February and March, including number of days to sell and listing ratios, had been pointing to yet more upwards price pressure.
"We expect the unemployment rate to rise from 4 per cent to just under 9 per cent and wage growth to slow sharply, so servicing existing mortgage debt will become more difficult for those affected," he said.
By way of comparison, during the 2008 global financial crisis, New Zealand's unemployment cycle moved from 3.3 per cent to 6.5 per cent, with house prices correcting by 11.9 per cent.
"This time around, the spike in unemployment will be fairly immediate, but hopefully not as long lasting as prior cycles," Jones said.
"In addition, record low mortgage rates and debt relief from the mortgage holiday scheme may limit distressed sales to some extent, blunting the impact from the labour market deterioration on house prices."
ASB also expected a drop in housing supply, even as lockdown restrictions ease, with supply "retrenched further" as prospective sellers opt to wait for better market conditions before listing.
CoreLogic senior economist Kelvin Davidson said he was working on the assumption that sales volumes would be between 15 per cent and 20 per cent lower in 2020, at about 70,000 sales.
Davidson said "ultra-low" mortgage rates are a key factor. In contrast with the GFC, when banks had to toughen up on lending, credit conditions should remain relatively supportive this time around for people with income and the willingness to borrow.
With KiwiSaver balances reduced and property deposits also affected, he said first home buyers may also struggle to access the market as readily as before, though any fall in house prices would benefit those aspiring to make a purchase.
Davidson said that proposals by the Reserve Bank to scrap the loan-to-value ratio rules for at least a year may not necessarily be a "game changer", as banks would still be cautious about income and expense testing and serviceability. Reduced deposit requirements would benefit some buyers.
Jones said that those regions that were most exposed to economic pressures, in particular Queenstown and the Southern Lakes region which were being devastating by the impact on tourism, would be hardest hit.
He was forecasting a decline in Auckland prices, which features a much higher percentage of investors and is also relatively more reliant on inward migration and offshore buyers.
"We expect investors to pull back from the market quite quickly and the border closure will likely bring to a halt the small amount of offshore buying that remained after 2018's foreign buyer ban."
By contrast, Jones expected regions with more exposure to primary industries, such as Hawke's Bay, Waikato, Taranaki, Southland and Canterbury, to fare better.
ASB's Jones said that residential rents, even without the government banning increases for the next six months, were likely to head lower.
Houseshold incomes are going to take a big hit and there would also be an increase in rental availability, some of it Airbnb accommodation that is no longer servicing the tourism sector.
Jones said he expected about a 5 per cent fall in new rents, which would add to downward pressure on house prices, "as existing and prospect investors are dissuaded from buying or selling property."