"However the reports suggest that this is occurring more in the regions, rather than in Auckland and Christchurch where we are seeing greatest price pressure."
The number of houses sold in August fell 3.4 percent to 6,548, for an annual gain of 8.5 percent in the same month a year earlier, according to the Institute. That's slowed from a peak annual pace of 33 percent in April.
O'Sullivan said the market remained active, with sales volumes "about in line with what we would normally expect for this time of year."
There were, however, sings of a slow down in the rate of sales volume growth.
"Compared to the previous market volume peak during 2001 -2004 volumes have not risen as fast in this cycle and are now trending down more quickly," said O'Sullivan.
See a regional breakdown of prices here.
ASB Bank economist Christina Leung said the modest decline in house sales was broad-based across the regions, including Auckland and Canterbury.
"Recent housing market data has shown an improvement in new listings as higher house prices encourage sellers to put their houses on the market. However, the overall level of listings remains low and insufficient to meet continued strong demand."
Leung said she estimated that REINZ stratified house prices increased 1.3 per cent in August once seasonally adjusted, with prices now 9.5 per cent higher on year-ago levels.
"Although there are signs higher house prices are encouraging stronger house-building demand in these regions, we expect it will be some years before the housing supply and demand imbalance is resolved. In the meantime, we expect house price growth will remain relatively high in these regions."
There was a dip in August sales, but the trend remained one of continued strength in housing demand reflecting the effects of low interest rates and recovery in net migration.
"Despite signs higher house prices are encouraging sellers to put their houses on the market, the improvement in new house listings has not been enough to keep up with continued strong housing demand," she said.
Leung said these supply constraints were particularly acute in Auckland and Christchurch, and had underpinned relatively strong house price inflation in these regions.
"We expect it will take some years for the housing supply and demand imbalance to correct. In the meantime, housing constraints are likely to underpin continued house price growth, but the pace of price growth should ease over 2014 as construction accelerates and as interest rates increase."
REINZ chief executive Helen O'Sullivan said agents across the country were saying that potential sellers are taking a 'wait and see' attitude both in terms of rising prices and what effect the Reserve Bank's new lending policy would have on the market.
Last month, Reserve Bank governor Graeme Wheeler announced restrictions on high loan-to-value ratio mortgage lending, essentially loans with deposits of less than a fifth of a property's value, will come into play from October. The central bank aims to take the sting out of a heating property market that threatens the nation's financial stability, and could spill over into fuelling inflation.
-nzherald.co.nz/businessdesk
