An independent economist believes the housing market will recover and "exceed" the COVID-19 peak but couldn't say when that would happen.
It comes as the housing market is in the middle of its biggest slump after prices soared during the COVID-19 pandemic.
The latest CoreLogic NZ Pain and Gain report showed 6.1 percent of property resold in the first three months of 2023 went for a price less than the previous transaction. This figure is up from 4 percent in the final three months of last year and is the highest since Q1 in 2016.
On top of this, the CoreLogic house price index fell 0.6 percent last month following a 1.1 percent decline in March. National average home values stood at $928,656.
But the slump might be coming to an end, with suggestions house prices are bottoming out.
The housing market has been suffering from the Reserve Bank's aggressive interest rate hiking campaign to tame inflation.
The official cash rate has been on a rapid rise over the last two years, going from 0.25 percent in August 2021 to the current rate of 5.25 percent as the Reserve Bank tries to bring spiralling inflation - sitting at 6.7 percent - under control.
Economist Tony Alexander told AM on Wednesday only in hindsight will we know when the market has bottomed out.
"We're somewhere in the middle of it at the moment and we will only know by looking back and go, 'Ah, that's when we bottomed out', as the Australians have just done, two months after the event," Alexander told AM co-host Ryan Bridge.
The key to turning around the housing market is when Kiwis react to big changes hitting the country, Alexander believes.
Once they do, he thinks a two-year backlog of buyers will be "activated" and looking to buy again.
"At some stage, they'll realise we're not all disappearing to Australia, there are a lot of migrants coming in from the rest of the world. At some stage, the outlook for interest rates will get better," he said.
"You put these things together with the two-year build-up of people who have wanted to buy but haven't bought in 2021 because prices were rising strongly and nothing to choose from and they haven't bought in 2022 because why buy if it's going down in price. At some stage, that two-year queue of people gets activated and that will cause, I think, an interesting recovery in the market."
Once New Zealand gets the election out of the way in October, Alexander believes this will be the point the market starts to turn.
When asked if he thinks house prices will surge back past the COVID highs, Alexander was confident they would.
"It's sort of easy. We definitely exceed where we were previously, it's a question of will that happen within two years or five years," he told AM.
"That's something I think most of us have proven, we cannot predict exactly what is going to happen with those prices."
The rental market is another area that is in an "interesting dynamic" at the moment, Alexander says, with migration surging and the Government's new tax changes seeing a lot of landlords wanting to sell.
The Government introduced the bright-line and tax changes in part to discourage property speculation by investors, which had helped increase property prices.
Alexanders told AM it could be a good time to take advantage of the market.
"The Government has actively incentivised investors to leave the sector, so they are increasingly … concerned about the loss of the interest expense deductibility and they're finding it much, much easier to get good tenants," he said.
"So you balance that equation of it's getting harder to rent and prices are cheaper now and more young people will flow back into purchasing property.
"All I can say is maybe it's a good idea to take advantage of this opportunity when listings are still high and banks are increasingly willing to lend."
Watch the full interview with Tony Alexander in the video above.
