ANZ, New Zealand's biggest residential mortgage lender, has warned of an "outright house price fall", sparked by interest rate rises or a global recession and cited Auckland in particular.
In a survey examining residential property investor intentions, bank economists issued a reminder that house prices don't always rise.
"We could see an outright fall in house prices courtesy of higher interest rates or an economic recession," said the survey document whose contributors include ANZ chief economist Cameron Bagrie and senior economist Philip Borkin.
"The higher prices go of course, the harder it is for them to keep going up. Given that Auckland has one of the most stretched affordability ratios in the world, any further house price increases from here ups the ante on a correction to bring affordability metrics back into line," the ANZ economists said.
"While impossible to pinpoint a date, we need to consider candidates for a turn. We could see an outright fall in house prices courtesy of higher interest rates or an economic recession (likely global-led).
"Conversely, we could see a stagnation of house prices while incomes catch up. The latter would obviously be a preferable adjustment path and that is the path New Zealand has followed before. But with low inflation worldwide it's difficult to envisage inflation and incomes doing the work at the moment.
"Were we to see a deep recession, the widespread belief that New Zealand (or at least Auckland) house prices never fall too far could be sorely tested. While owner-occupier property prices tend not to correct downward too far (people just take their house off the market and stay put), the same cannot be said for land prices, apartments or investment properties, which do tend to move in line with the economic cycle," the economists said.
Already, signs are emerging that the national housing market was changing, they said.
"Evidence is now mounting that the tighter loan-to-value ratio restrictions that have just come into effect are cooling the housing market. House sales are down nearly 10 per cent versus a year ago and houses are taking longer to sell (though the market is still incredibly tight). Typically, house prices follow sales with a 3-6 month lag. House price inflation is already easing and we expect it to continue to do so," the economists said.
Reports have emerged that banks won't lend as much or as easily to property developers, after the cancellation of 35 Auckland apartment projects in the last year, according to Colliers International.
The ANZ survey said landlord confidence had hit a seven-year high, as investors prepare to buy more.
"The proportion of investors planning to buy more properties rose to the highest since 2009, and investors are optimistic over returns (both capital gains and rental income) for both the year ahead and longer term," said the residential investor survey, headed "Great expectations".
Were we to see a deep recession, the widespread belief that New Zealand (or at least Auckland) house prices never fall too far could be sorely tested
The proportion of investors planning to buy more properties rose to a net 69 per cent of respondents, the highest since 2009, and investors are optimistic over returns for the year ahead and longer term, the survey said.
This month, the Herald reported on data compiled by Core Logic that showed the share of Auckland houses being bought by people with five or more properties has grown 40 per cent since 2012, after remaining steady for the previous seven years.
"Average house price expectations have risen, reflecting that property market strength has spread around the country. Nearly 60 per cent of investors expect price gains of at least 6 per cent over the next 12 months," the survey said.
"Auckland house price expectations are still very strong but have been overtaken by the rest of the North Island.
"Investors expect to have their cake and eat it too: rental growth expectations for the next year are also strong outside of Canterbury, with short-term growth expectations the highest in the upper North Island.
"In terms of what is keeping property investors up at night, LVR restrictions and other regulatory changes are certainly up there, but are trumped by the risk of damage to property, especially methamphetamine contamination," it said.