The downturn in the property market is expected to continue, despite some signs that prices are stabilising.

CoreLogic NZ's fourth quarter Property Market & Economic Update shows the quarterly drop in national home values was the smallest since May, at 0.9 per cent, with a monthly drop of just 0.2 per cent in December.

"With a recession looming, ongoing inflationary concerns, more cash rate increases to come, and shorter-term mortgage rates potentially yet to peak there's no suggestion of an end or bottoming to this current downswing," says CoreLogic NZ chief property economist Kelvin Davidson.

"Overall, we suspect sales volumes will remain fairly low in 2023 and a fall in values of perhaps another 5 to 10 per cent, taking the total drop from the peak to around 20 per cent."

However, he says there could be a pick-up in demand by the middle of the year if the market sees a levelling-off of interest rates.

In the meantime, Davidson says buyers and sellers have made it clear they were not in a rush to complete property transactions in the last month of 2022.

Sales volumes remained low in the final quarter of last year, he said, with some buyers finding it difficult to secure finance, while others shopped around for a good deal.

In addition, he says there are no signs of widespread forced sales, as unemployment levels remain low and households adjusted to the new and higher interest rate environment.

Demand from first home buyers has been holding up in recent months, while investors remain cautious.

"There's little surprise in the buyer demographics given investors face a 40 per cent deposit hurdle, removal of interest deductibility, higher costs, low gross yields, and flattening rents.

"Higher term deposit rates may also be luring some people towards the bank rather than the property market."

He says the property downturn varies from region to region, with parts of the wider Wellington area and central and lower North Island experiencing more weakness than many parts of Canterbury and Southland.

"Much of the diversity in results comes down to differing starting positions for housing affordability, but also other influences such as the health of the underlying economy and the prevailing mood, which is harder to quantify."

He says the general outlook for the housing market remains weak in line with the Reserve Bank's forecast of an economic recession from the middle of the year, with the official cash rate expected to rise to 5.5 per cent.

Davidson says that could see a typical mortgage rate rising to 7 per cent or more, as unemployment levels are expected to rise.

"The rise in the unemployment rate this year could be more about a larger labour force," he says, adding that people already in a job should be able to ride through the downturn.

"The politics will also be worth watching and the now-confirmed general election in October could drive some uncertainty and a temporary pull-back for sales activity around that time.

"Some investors will no doubt be hoping for a new National-led government, and a reinstatement of interest deductibility, but nothing is guaranteed in politics."

-RNZ.