"Local and global seismic events have effectively quashed a recovery until late 2011 and 2012, though off a lower base," ANZ said.
The bank said the Government response to the Christchurch earthquakes would be critical.
"The experience of Chile shows that a concerted and speedy effort can see a quick turnaround in economic prospects in growth terms, though the hit to the nation's wealth will be long-lived regardless."
This further blow to sentiment has been reflected in the ANZ Property Gauges, 10 gauges the bank uses to assess the state of the market and look for signs of emerging trends.
Of the 10 gauges, only one showed a positive direction for house prices.
Interest rates, with cuts across the entire mortgage rate curve, was the sole gauge pointing to rising house prices.
Of the remaining nine gauges, two pointed to either upward or neutral movement, four were in neutral territory and three pointed to house price falls.
Among the neutral gauges mortgagee sales remained high but ANZ said the last data was from September and migration remained low.
Both supply-demand balance and consents and house sales pointed to either neutral or rising prices, with the bank saying issues of supply and demand are set to deteriorate further in Auckland and Christchurch.
Gauges for affordability, serviceability/indebtedness and liquidity all point to house price falls.
ANZ said that while the recent interest rate cuts would improve affordability, the level remained too high and that households continue to deleverage.
"The big uncertainty is whether households choose to spend some of their lower mortgage servicing costs, or use it to pay down their debt faster," ANZ said.
"Funny how sometimes it is difficult to get households to save when you want them to, and now to spend when you need them to."
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