The economic risk posed by rising property prices and higher household borrowing has likely passed its peak, according to S&P Global Ratings.
The agency said last September that the local housing market needed to cool further and credit growth needed to slow to remove risks to the wider banking system.
S&P said at the time that risks from house price inflation and credit growth had stabilised, with the third round of the Reserve Bank's loan-to-value ratio restrictions biting into demand for residential property investor mortgages and banks tightening their own credit since late 2015.
In a report out today, S&P said this year would be one of consolidation of housing risks.
"The risks that the banking sector in New Zealand faces from five years of strong growth in both house price inflation, and more recently, household credit growth, have likely peaked, in our view, and we believe the basis for a partial unwinding is building," S&P credit analyst Andrew Mayes said in the report.
Mayes told the Herald housing imbalances — driven by higher real estate prices and credit growth — had been building up over a number of years.
Those imbalances steadied last year after action taken by the Reserve Bank and by the big banks themselves, when they re-priced some of their loans.
"Some of those risks have abated recently," he said.
"There will perhaps be a bit of an uptick in prices this year but nothing like what we have seen in recent years."
Credit growth would probably even out at current levels.
"We think that some of those risks are going to peak, or possibly may have already peaked," Mayes said.
"That buildup in leverage that we have had over a number of years does increase vulnerability if something [adverse] was to take place," he said.
"The chances of anything taking place is quite low, but if it did take place, then the downside risk is going be far greater than it has been four or five years ago, when we did not have quite so much leverage."
A catalyst could still be higher real estate prices or renewed credit growth.
"On that basis you would think that the risks are pretty well measured," he said.
"In 2018, we see the recent slowdown in credit growth steadying and house price inflation consolidating around current levels from recent cyclical lows in late 2017, as some headwinds of the last 18 months abate," Mayes said. "Thereafter, we expect relatively measured house price and credit growth."
S&P's "base case outlook" beyond 2018 factors in recent government policy announcements, falling migration, higher lending rates and changes to capital rules.
"Some of these factors are likely to take some time to take full effect, and some may never be fully achieved," Mayes said.
"On this basis, we believe it is unlikely a confluence of these factors will lead to a correction in house prices — all else being equal."
The report said it was plausible that stronger house price inflation could emerge on the back of lower volumes.
"However, the absence of stronger credit growth should suggest the risks remain reasonably balanced."
Data out this month from the Real Estate Institute of NZ showed that the median house price for New Zealand increased by 7.1 per cent to $520,000 in January from the same month last year, while Auckland's median price fell by 1.2 per cent to $820,000.
The Reserve Bank, in last November's financial stability report, said New Zealand's financial system remained exposed to a number of risks, but that these risks had reduced over the past six months.
Elsewhere, in S&P's report, the agency said against the backdrop of low interest rates and solid economic growth, 2018 would be another good year for major banks.