Sydney house values have dropped 10.1 per cent since last year, prompting a New Zealand economist to warn of a possible knock-on effect here.

Sydney's housing slump reached a new milestone, with values falling further than the late 1980s when Australia was on the cusp of entering its last recession, Bloomberg has reported.

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Average Sydney home values have fallen 10.1 per cent since their 2017 peak, CoreLogic Inc.'s head of research Tim Lawless said this week.

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That surpasses the top-to-bottom decline of 9.6 per cent recorded between 1989 and 1991.

Mark Smith, ASB senior economist, says: "Lower Australian house prices will eventually have a dampening impact on those in New Zealand", although he then goes on to cite factors which could keep our prices up.

However, New Zealand and Australian house prices movements tend to be linked, he noted.

"Evidence of a long-run relationship between Trans-Tasman house price levels is a little murkier, but the relationship has tightened since the global financial crisis. It could be that determinants of New Zealand and Australian house prices, including mortgage interest rates, may be moving more in sync with each other," Smith said today.

The declines in Sydney are accelerating as tighter mortgage lending standards crimp the number of people who can borrow and as nervous buyers sit on the sidelines.

Smith says New Zealand house price rises have "significantly outpaced those in Australia" in the last few decades.

Sydney's slump is clearly displayed here. Image/Bloomberg.
Sydney's slump is clearly displayed here. Image/Bloomberg.

The potential for declines in our market could be offset by lower mortgage interest rates, still-elevated net immigration and under-building throughout New Zealand.

Those factors could "offset any direct impact from lower Australian house prices," Smith said.

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The Real Estate Institute is due on Friday morning to release national residential data for November.