Annual house prices continue to track down with further falls of between 15 and 20 per cent expected in the second half of this year.

January's CoreLogic House Price Index saw residential property values fall 7.2 per cent over the year earlier, which was the biggest 12-month decline since May 2009's drop of 7.9 per cent.

However, CoreLogic chief property economist Kelvin Davidson says last month's drop was smaller than the worst of the global financial crisis, when prices fell 9.7 percent in the year to March 2009.

He says the green shoots of optimism seen in October and November, evaporated following the Reserve Bank's gloomy monetary policy satement in late November, which pointed to rising interest rates and a recession from the middle of this year.

"We're not seeing any real evidence yet that home owners are looking to ramp up their selling activity - with unemployment still low, they can generally sit on the market for as long as it takes, or just de-list.

"But at the same time, buyers in a comfortable borrowing position still hold the balance of power when it comes to pricing, and this has clearly driven a further leg down for values in January."

House prices fell in all the major centres and regions, apart from Gisborne with an annual increase of 0.4 per cent, New Plymouth at 2 per cent and Queenstown at 8.3 per cent.

It was a different story in Wellington with an annual price drop of 18.1 per cent, while Auckland and Hamilton fell 8.2 per cent, Dunedin down 10 per cent and Christchurch down 1 per cent.

Davidson says mortgage rates are probably at or near their peak, with further increases in the Reserve Bank's official cash rate (OCR), forecast to peak at 5.5 per cent, already priced into current fixed mortgage rates.

"Floating rates will tend to track the official cash rate so they probably haven't peaked. However, not many people borrow on floating rates," he says, adding most people will borrow with fixed rates of one or two years.

However, he says fixed mortgage rates are likely to remain above 7 per cent as long as inflation remained high, with the RBNZ forecasting annual inflation to drop to 2 per cent in the third quarter of 2025.

"So I wouldn't be anticipating any marked falls in mortgage rates until into next year or perhaps even after that because (the RBNZ) really has to get inflation back in the bottle."

Fourth quarter annual inflation for the three months ended December was 7.2 per cent, which was unchanged from the third quarter.

Davidson says it's too soon to tell whether the recent change of political leadership would have a material impact on house prices, with Prime Minister Chris Hipkins taking over from Jacinda Ardern and a general election to be held on 14 October.

"No doubt some existing and would-be property investors will be hoping for a National victory and a follow-through on their promise to reverse Labour's brightline and interest deductibility changes," he says.

While investors and first time buyers will be looking for bargains, there are still a number of challenges for borrowers looking to finance a purchase.

He says loan-to-value bank lending restrictions (LVRs) which required big deposits on mortgages, were a high hurdle for would-be buyers to jump.

Separately, the online advertising portal, realestate.co.nz says average asking prices for homes fell 10.5 per cent last month to $900,000.

-Nona Pellitier/RNZ.