Property prices are forecast to decline nearly 8% in the year to March 2010 and a further 4% in the year to March 2011. They are already down an annual 9%, it said in a fiscal report.
Attitudes to personal wealth are set to change because of the property crisis, it added. 'Property price falls 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,' it said.
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 property market will stage a significant recovery any time soon, with the risks tilted towards further declines in house prices at 2009 progresses,' it said.
The property downturn has already wiped $60 billion off the value of the nation's real estate stock and $25 billion alone in Auckland, according to Kieran Trass, an Auckland property investor and analyst.
Using official QV figures, his calculations show that it is the worst slump since records began in 1961. Some parts of the country have suffered more than others with Mt Roskill suffering one of the worst with prices falling 16%.
These official figures showed that property prices dropped 9.2% in the three months to April compared to the same period last year. Economists say that if these steep property price falls continue then there will be an impact on finances.
'For most people, it's not a worry, but it would be if this continued at the annual rate because people would lose so much of their wealth they would decide it's better to take bankruptcy, walk away from the mortgage and the house,' said BNZ chief economist Tony Alexander.
