ASB says Aotearoa's housing market could expect a "modest" decline in house prices until the middle of next year.
In ASB's latest Home Economics newsletter the bank said it took two years for Aotearoa's housing market to "build up a fierce head of steam" but only "a few months of pressure to be completely released."
The bank last year signalled the "three big housing nasties" - high mortgage rates, tighter credit conditions and increased supply could all arrive at once and says they have now.
"It was the credit tightening that tipped the housing market scales, and things may soon ease up a little on this front."
The bank says the impact on house prices from a surge in mortgage rates is still to come.
"Around 60 percent of all mortgage rates will be reset over the coming 12 months."
ASB expects with faster and larger lifts on mortgage rates, house prices will fall and continue to do so.
"We now expect a 9 percent fall in national house prices over 2022 with falls continuing into the early part of 2023."
The bank anticipates a 12 percent peak-to-trough decline in house prices, but says when adjusted to inflation terms the market would see a 20 percent correction.
"That would only take house prices back to where they were in early 2021, with prices still some 27 percent higher than the start of the pandemic."
The decline is something the bank hasn't seen since the 1970s.
ASB expects a "house price inflation recovery" to kick in over the second half of 2023, which would see the fall in house prices stop and begin to climb again.
