A major investment fund is reducing its exposure to housing related stocks in anticipation of Auckland's property market falling further this year.

"We're going in the same direction as the Australian housing market," says Milford senior analyst Frances Sweetman of the local market.

From a 2017 peak, house prices in Sydney and Melbourne have dropped 11.1 per cent and 7.2 per cent respectively, according to Corelogic data.

While Sweetman doesn't expect falls here to be as dramatic as that, she says: "it's very difficult to paint a positive picture of the housing market in 2019."

"We are investing a lot less in housing-related stocks in New Zealand (including the retirement village operators)," Sweetman said.

"We've done a lot of work on the housing market over the last six months because we've been seeing a slowdown on the horizon and weighing the impact that's likely to have on the broader economy. The same analysis is causing us to reduce our exposure in Australia even more."

The three traditional drivers of housing markets were interest rates, population change and confidence, she said.

"The big variable is confidence. Interest rates are low and will stay low, migration is tracking down very slowly," she said.

"It is almost like this is the early stages of a more negative cycle," she said.

But there were other factors weighing on the local market this year.

"The first is affordability. We've seen house prices in Auckland more than double in the last 10 years, which is a major barrier for people buying a new home or upgrading."

The second was the regulation on investors - stricter bright-line tests, the foreign buyer ban, higher standards for rental properties and even the possibility of a broader capital gains tax.

"It looks like the easy gains have gone," she said. "You put all of those together and you'd put it in the too hard basket.

Also, tougher lending rules for banks in Australia (flowing from the Banking Royal Commission) were hitting the market there and would likely flow through to New Zealand.

Although she noted that lending practices had not been as aggressive here so the impact shouldn't be as extreme.

Independent economist Cameron Bagrie agreed that affordability and the tightening of bank lending have combined to depress Auckland's market.

"I think there's too much sugar-coating of what's going on in the Auckland market. Let's call a spade a spade. House prices are falling," he said.

"People have placed to much weight on supply and demand imbalance in Auckland. They say there's a shortage of houses so house prices can't fall – that's baloney."

That was borne out by the fact that the region with the biggest supply/demand imbalance was also the region in retreat, he said.

The REINZ House Price Index shows the Auckland region is down 2.7 per cent since its peak in April 2017.

But if you dug into the breakdown over different periods it was clear some wards had fallen much further than that, Bagrie said.

Since a peak in November 2017 North Shore house prices had fallen by 5.1 per cent on the Index. Manukau was off by 3.6 per cent since April 2017

An orderly correction, while interest rates and unemployment were low, was hardly a bad thing and would improve affordability, Bagrie said.

"It's important to remember that many of these places have seen gains of 120 or 130 per cent since 2009."

The REINZ House Price Index is the market indicator preferred by economists - including the Reserve Bank - because it accounts for short term fluctuations which can distort median prices.