ANZ is predicting house prices will fall 18% from their late 2021 peak, an increase of 3% from the bank's 15% forecast last month.
In its monthly publication Property Focus, ANZ economists said that although forecasting the housing market is fraught with uncertainty, it is "abundantly clear" prices would likely continue to fall given the state of the global and domestic market.
The figures are even more drastic when adjusted for wage inflation, equalling a predicted property price drop of almost 27% in real terms, before prices rebound.
And while the figures signal a steeper drop in house prices than previously predicted, mortgage rates are also likely heading for a sharp rise.
ANZ analysts said the falling property values can be traced back to the high price of consumer goods driving up domestic inflation.
To cool the dollar it's predicted the Reserve Bank of New Zealand will respond by once again raising the official cash rate (OCR) by 5%. This is expected to happen twice, once in November and again in February.
The banking giant warns in addition more OCR hikes are possible "if the labour market fails to loosen soon" or if the Government adds another additional fiscal stimulus to the economic mix.
"The OCR may need to go higher still to prevent the wage-price spiral from developing further," said ANZ.
But while the modellers say they are confident in the numbers, they note the accuracy of any market prediction "tends to be a bit of a lottery".
"Pinpointing the eventual floor in the market is fraught with uncertainty."
"We’re not saying this to distance ourselves from our forecast... but rather to underline that our forecast should not be interpreted as the one source of truth in terms of what’s coming."
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