House prices are just 5% below the November 2007 peak and are set to rise 3% this and next year, according to JPMorgan economist Helen Kevans.
Kevans cited the "chronic" shortage of housing supply as the main driver for the rise, offsetting weaker immigration, increased household austerity and higher interest rates.
She said that despite a softening housing market last year, prompted by Government tax changes that prevented investors offsetting their losses against income, signs have emerged recently that the price cycle is turning up.
"Most measures suggest that house prices already have bottomed," she said, citing Real Estate Institute of New Zealand (REINZ) figures that showed house prices rose 0.5% in August from a year earlier.
Mortgage approvals have also been increasing, with local banks approving $839 million worth of mortgages in the week to September 2.
Kevans cites the low level of new home building as the main factor behind the forecast price rise, with construction work slowing to a decade-low in the second quarter.
"The rate of construction has been insufficient to fill the existing shortage of homes, let alone meet the underlying increase in demand," she said.
She said new housing supply increased by just 15,600 last year, well below the 21,000 level estimated to satisfy demand.
While Kevans believes this shortage will offset weaker inbound migration and higher interest rates, factors that weigh on house price appreciation, she also believes price rises won't be uniform across the country, "particularly given the distortions created by the earthquake in Christchurch."
Kevans said an exodus of Cantabrians will also exacerbate housing shortages in other areas, especially Auckland.
"Momentum in the Auckland market is already building, thanks to strong internal migration inflows and a chronic shortage of new housing."
Wellington isn't forecast to perform as well however, largely due to its reliance on Government hiring at a time when National has committed to reducing the size of the state sector.