ANZ chief economist Cameron Bagrie has warned Auckland home buyers that the city is exposed to the risk of increasing interest rates, according to a Fairfax article.
Bagrie said the real driver of house prices were record low rates and with lenders already raising them, the higher borrowing costs would overshadow the supply shortage.
"I think the big driver is interest rates, and interest rates are heading up," Bagrie told Fairfax.
"We're in a fundamentally different market now, so I think the game's over. Auckland is in a consolidation phase.
"House prices have risen to such an extent that we estimate that for the average Auckland household to purchase the average house... debt servicing costs (principle and interest) would now represent 51 per cent of average disposable incomes," Bagrie said.
The average house price in Auckland is 91% above the previous peak of 2007.
"You've still got a [supply] shortage, so economics 101 tells you prices have got to go up," Bagrie said.
"But the housing shortage has not been the dominant player here in terms of what's driving the market.
"You can't ignore the impact that interest rates have had on the market, and I just think that's going to be the dominant driver and influence on the market going forward."
The official cash rate (OCR) still remains at an all-time low after it was held this month but interest rates have been heading up despite this.