NZ WATCH: Housing Market Too Hot, But Big Falls Unlikely

Despite forecasts that economic growth will slow significantly from the 5.7% expansion for the year to end-June, economists said the rise in housing prices will be held up by fundamental factors, notably a growth in the country's population.

A correction is possible - and is even welcome as a way to shake off the recent excesses - but any fall will be limited, they added.

House prices have risen over 35% to a median NZ$250,000 in the two years to September, according to figures issued last month by the Real Estate Institute of New Zealand.

Westpac is forecasting a 5% drop in house prices, based on economic modeling.

"A lot of increases we have seen have been driven by fundamental factors," said Westpac economist Donna Purdue. "In New Zealand it's been driven by the fact that we've had such a big surge in population and all those people have to be housed."

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