House prices are likely to increase by just 5 per cent this year with the prospect some fixed-term mortgage rates will go above 9 per cent soon and floating rates will top 10 per cent.
Some economists say the Reserve Bank is almost certain to raise official interest rates late this month, or in June by the latest.
A second rate rise is seen as a 50-50 chance.
A business opinion survey made public on Tuesday pointed to widespread price increases and a tight job market.
The next Reserve Bank rate rise is already largely factored in to existing mortgage interest rates, so fixed mortgage rates would probably go up less than 25 basis points.
But home loan rates would jump up again if the Reserve Bank moved twice. This would push floating rates above 10 per cent, and some fixed rates might go above 9 per cent.
That would come as a shock to people who fixed their mortgage at 7 per cent a couple of years ago, economists said.
Bank of New Zealand chief economist Tony Alexander said borrowers would move off an average of about 7.7 per cent on fixed loans in the coming months, and face a rate of almost 9 per cent.
'I think it will restrain the housing market,' he said.
House sales were likely to fall and investors would not be able to make a rental property stack up in the face of low rental returns and rising interest rates.
Interest costs were 'horrendous' for first-home buyers and the market would definitely cool, he said.
'I don't think prices will fall, but they will rise about 5 per cent this year.'
They would be held up by strong job security and rising wages.
Infometrics economist Chris Worthington said yesterday that the NZIER survey of business opinion confirmed its view that there would be at least one more Reserve Bank rate rise, probably late this month, with an even chance of another rate rise.
Fixed mortgage rates moving to almost 9 per cent would start to be felt in the housing market, he said.
'It is quite a sharp effect.
'You have exhausted the third wind (in house prices), with a definite increase in interest rates, migration has slowed a little, and we still estimate the housing market is still pushing close to oversupply, in terms of new building.'
Infometrics forecast house prices to rise about 5 per cent over the year to June.
Meanwhile, Reserve Bank governor Alan Bollard is refusing to comment on his talks with the big banks, after private meetings in the past month, which some suggested led to the latest round of fixed-term mortgage rate rises.
National Party finance spokesman Bill English said yesterday that Dr Bollard should say if he was using his tools for prudential supervision of the banking system to privately influence monetary policy.
Dr Bollard said last month that he would arrange meetings with the bank chiefs. He said then that he was considering imposing higher capital ratios, forcing banks to hold more money for each dollar they lent to home buyers.
Even though Dr Bollard told Parliament's finance and expenditure select committee that he would hold the meetings, Mr English said Dr Bollard needed to explain the 'secret meetings' and how they were consistent with transparent monetary policy.