For those frozen out of the housing market by high prices, data suggested cheaper houses may be on the way, economists said today.
Real Estate Institute (REINZ) figures showed the median house price fell 2 per cent in December to $345,000 and sales fell by a third.
The rise in the median price in 2007 was just 4.5 per cent compared with 11.9 per cent in 2006.
There was also a severe slump in house sales - down 32 per cent on December 2006, to 5597.
The median number of days to sell a house remained steady at 36.
ANZ economist Philip Borkin said last month's price fall may not be a one-off event and further upside was strictly limited.
"We expect house price growth to remain limited and an outright fall is looking likely."
That could alleviate concerns about the affordability of mortgages, which has seen payments rise to nearly 50 per cent of average household incomes from a long-term average of 35 per cent.
REINZ national president Murray Cleland blamed the holiday break, interest rate rises and slowing immigration for the fall.
H e put a brave face on the slump saying "despite some commentators' predictions, there is no discernable erosion of property values".
Prices had held up against successive interest rate increases. But he accepted the market may have peaked after a seven-year run up during which prices had doubled, he said.
ANZ's Mr Borkin said higher interest rates had affected demand. House prices had largely been trending sideways since March and the median numbers of days to sell a house continued to track up, portending continued easing price growth, he said.
However, prices generally remained buoyant in the north in December while they were depressed in the south.
The median price fell 8.6 per cent in Southland to $191,000, 6.4 per cent in Otago to $250,000 and in Central Otago Lakes by 2.6 per cent to $419,000.
Wellington was the other region to take a big hit, with the median price dropping 6.3 per cent to $370,000.
Meanwhile, the median price in Northland rose 8.9 per cent to $335,000. The Auckland price rose 2.2 per cent to $460,000 and Waikato/Bay of Plenty prices by the same margin to $330,000.
Seven of the 12 regions recorded an increase in the median price in December while 10 of the 12 regions had increases over the year.
Prices in Taranaki and Central Otago Lakes fell over the year, while prices in Southland rose 27.33 per cent; Northland, 15.31 per cent; Manawatu/Wanganui, 13.48 per cent; and Waikato/Bay of Plenty, 10.00 per cent.
Mr Cleland predicted the market would pick up with sales increasing in February and March after the summer holidays.
"However, it is unrealistic to expect the stellar increase in prices as seen over the past seven years to continue indefinitely with the market now entering a period of consolidation."
He warned that further increases in interest rates would likely result in buyers becoming even more cautious and potential vendors possibly deciding to hold off selling, meaning fewer sales than expected over coming months.
Westpac Bank this week predicted two more rate rises by the Reserve Bank this year.