The Treasury's economic and fiscal update had a gloomy house price outlook, citing increasing unemployment as a factor putting on pressure.
Nominal house prices are forecast to decline nearly 8 per cent in the year to March 2010 and a further 4 per cent in the year to March 2011.
They are already down an annual 9 per cent.
House price drops would cause attitudes to personal wealth to change, the update said.
"This will not only affect households' perceptions of wealth but will also severely constrain the ability of households to borrow against their houses to finance spending."
The Treasury also forecast low levels of investment in property and noted annual building consents were at their lowest in over 25 years.
"There have been signs of a slight recovery in house sales over April but given the factors above, it is unlikely that the housing market will stage a significant recovery any time soon, with the risks tilted towards further declines in house prices at 2009 progresses.
