KEY POINTS:
Falling house prices could make homeowners feel a lot poorer and may mean they spend much less.
The Treasury has examined the risks of our roller-coaster residential ride coming to an end and reckons tougher times are ahead.
New Zealanders could slash discretionary spending on items such as flat-screen TVs or the latest home computer if the Government's leading advisers on economic and financial issues is right.
In the Treasury's forecast yesterday of house prices, it said they could drop 7 per cent by next March.
But it warned that the decline could be more drastic because net migration could be lower than forecast and debt servicing might become more difficult if there was more market turmoil.
"A more rapid drop in house prices than forecast could lower the consumption profile by making people less wealthy and also by lowering the value of collateral to borrow against," the Treasury said.
Greg Haddon of Deloittes in Auckland backed the Treasury analysis, saying people were already tightening their belts because of house price falls.
