(Bloomberg) -- New Zealand’s housing market decline gathered pace in July, with a key gauge of property prices recording its first annual drop in 11 years.

The Real Estate Institute’s price index slid 2.9% from a year earlier, the first fall since 2011, the group said Thursday in Wellington. On a monthly basis, the gauge has dropped for the past five months straight. 

The reversal in house prices comes as the Reserve Bank pursues aggressive policy tightening to damp demand and curb inflation. It’s expected to deliver a fourth straight half-percentage point interest-rate hike next week -- taking the Official Cash Rate to 3% -- and signal more rises  to come.

The RBNZ in May forecast house prices would fall 8.1% this year, while bank economists are predicting double-digit declines.

“House prices have further to fall in the current cycle as credit conditions remain tight and confidence is lacking,” said Jeremy Couchman, senior economist at Kiwibank in Wellington. He expects at least a 10% drop in 2022, and notes the price index at present has only returned to May 2021 levels.

Still, accelerating declines in house prices and signs of cooling economic growth suggest the RBNZ may need to to temper the pace of future tightening. 

“The ongoing housing downturn will weigh on activity in earnest before long,” said Marcel Thieliant, senior economist at Capital Economics. He expects the Official Cash Rate to peak at 3.5% this year, compared with the 4% high the RBNZ forecast in May.

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