Key Points:

So just how far will house prices fall this year?

That's the question facing many people considering selling, getting their foot on the ladder or simply keeping a watchful eye on New Zealand's biggest investment sector.

Housing's ever-fluctuating fortunes can make or break many of us because 70 per cent of the nations's net worth is tied up there - it is estimated to be worth $600 billion.

The housing boom over the past decade created an affordability crisis which left many people wondering when they would ever be able to afford to own that roof over their heads.

But Quotable Value's November statistics showed a 6.8 per cent decline in house values over the past year - calculated over the three months ending last November and compared with the same period in 2007.

The Real Estate Institute's figures showed a 4 per cent price drop in 2008, a major turnaround after double-digit growth earlier this decade.

Sales volumes suffered the most as buyers held back and sellers took fright. One snapshot showed a 60 per cent volume drop. In November 2003, when the market was ripping ahead, 10,774 residential properties were sold. Last November just 4279 places sold.

Economists prefer to watch volumes rather than prices because one eventually follows the other.

The number of "days-to-sell" is another forward-looking measure economists take seriously. Another comparison with November 2003 further highlights the shift in the market. At that time the Real Estate Institute recorded a median 24 days to sell. Five years later, that more than doubled to 44 days.

Some experts say those indicators are a precursor to a big price freefall.

Estimates of a 30 per cent price drop have angered people keener to take a brighter view of the market.

But even the conservative Reserve Bank's monetary policy statement out last month was hardly optimistic.

"Further downward adjustment from current overvalued prices is expected over the coming year or so with next to no recovery of substance over the remainder of the projection.

"From their peak in 2007, nominal house prices are projected to fall 16 per cent by the end of 2010 or 24 per cent in real terms, slightly more than was projected in the September statement.

"Such moderation would bring house prices to a level more in line with fundamentals. There is a risk of house prices falling by more than this," the bank said.

One economist went much further.

"Housing hell", wrote Rodney Dickens looking at 2009 and beyond.

"The average rental income will have to increase 71 per cent or the median house price will have to fall 42 per cent," he said, if historical average rental yields of 7.7 per cent on residential property were to apply.

"Or, more likely some combination of the two will unfold."

Dickens, a leading economist who once worked for Commonwealth Bank of Australia and ABN Amro, now runs his Strategic Risk Analysis from Whangarei where he studies sectors of the market like coastal and resort property and geographic areas.

Real Estate Institute president Mike Elford says low volumes make it hard to project 2009 but a 5 to 10 per cent drop this year is not unlikely.

"Economic confidence, interest rates and employment security will be major factors. Let's not forget lower fuel prices coupled with tax cuts on April 1 because these will be big influences also," said the Dunedin-based agent of Edinburgh Realty.

He regrets that affordability improvements provided by lower interest rates are being cancelled out by tighter bank lending criteria. He said this was particularly hard on first-home buyers.

But not everyone would enjoy lower interest rates this year. "People are watching for the effect of the interest rate cuts to come into the equation. There are many people who are still locked into fixed rates so it may be a while before these benefits can be felt," Elford said.

Dickens' view is backed up by David McEwen, managing director of Auckland's IRG Investment Advisors, which provides research equities analysis.

The credit crunch will exacerbate the housing situation this year, McEwen believes. For affordability to improve, either wages must rise or house prices fall. And he doesn't see bosses getting more generous.

Tony Alexander, BNZ chief economist, thinks fewer places will sell and the housing sector is in for more pain.

"Although sales remain very weak they may almost be at their cyclical low and some improvement is likely before the middle of 2009.

"Downside risks still exist for prices but only because of the downside risk to New Zealand's economic growth from offshore weakness.

"Purely domestic factors suggest a plateauing in prices soon. We are allowing for another 5 per cent fall in prices from current levels."

So, when to buy?

Robin Clements, senior economist at UBS NZ, sees signals that people should hold off buying until at least the end of this year.

He is picking a 15 per cent price drop between the peak at the end of 2007 through to the end of 2009, basing his views on QV's quarterly price index, which showed a 5 per cent drop in the first two quarters of 2008.

He firmly expects a further 2 per cent drop to be revealed from that in the last half of the year.

Brendan O'Donovan, Westpac chief economist, says the drop has been 8 per cent but by the end of this year prices will be down 13 per cent.

"We expect house prices to continue falling in 2009 but at a less vicious pace of -5 per cent.

"A second consecutive year of house-price decline is not something New Zealand has experienced since at least the 1950s. But the United States has led the world into this house price bust and their pace of house price decline accelerated from -5 per cent in the first year to -17 per cent in the second.

"To suggest New Zealand will behave differently is boldly optimistic."