House prices are set to fall as the property market heads into what could be a winter of discontent for homeowners.

A flood of properties being listed for sale in February has prompted warnings that it could swamp the market and bring an end to the resurgence in prices which occurred last year.

Alistair Helm, the chief executive of property website realestate.co.nz, said 15,129 homes were listed for sale on the website in February, a massive 47% increase on January's listings.

Helm said there was usually a listing increase in February, but last month's surge was "exceptional".

This was compounded by the fact that the number of sales had tailed off dramatically at the end of last year, and in January hit their lowest in nearly 20 years. Real Estate Institute figures showed there were 3666 houses sold in January, down from 4957 in December, and 6056 in November.

The combination of a big increase in the number of homes for sale and a decline in the number being sold was creating a mountain of "inventory".

At the current rate of sales it would take 48 weeks to clear all of the homes listed on realestate.co.nz, up from 34 weeks in December, Helm said.

There were also indications that vendors were listing properties at unrealistically high prices, making it even more difficult for them to sell.

Asking prices of properties listed on realestate.co.nz in February were 4% up on new listings in January.

Helm said house prices were propped up last year by a lack of listings, meaning buyers often had to compete for properties. The market had also been helped by the extremely low mortgage interest rates, which he described as "`addictive" for property buyers, a situation that was likely to end around the middle of the year when the Reserve Bank is expected to start raising interest rates again.

Currently floating mortgage rates are around 5.65%, while fixed rates range from 5.75% to 8.9% depending on their term.

But the increase in listings meant buyers would have more choice, could take longer to make that choice, and would probably want to pay less.

"If people want to sell they must price according to the market, and it's odd that asking prices are up because it indicates that people have expectations that are out of line with the market.

"People are pricing off the back of what happened last year, which was steady price increases month on month. So, to a certain extent, the market is not as comfortable and balanced as it was in the past and that shows up in sales levels, which are pretty low," Helm said.

Peter Thompson, managing director of Barfoot & Thompson, has also noticed a substantial increase in new listings, which he said were "unusually high" in February.

"Certainly there has been an influx, more than we expected," he said. And this was starting to affect prices.

While some properties were achieving good prices, others were yet to "meet the market", Thompson said.

"Prior to Christmas there was not much stock and plenty of buyers around, so vendors got a higher price.

"Now there's a bit more competition and vendors have to price right if they want to sell in a reasonable time. Buyers have more time to look at more properties. Those still thinking of yesterday's dollars aren't making the sales. But if the price is right, they will sell well," he said.

A notable aspect of the current market was the absence of investors, with sales largely being restricted to owner-occupiers.

"We're not seeing many investors, even though there are good bargains to be bought. They are sitting on the sidelines. If I was an investor I'd be sitting on the sidelines too, waiting to see what happens in the Budget," Thompson said.

The government has said it is considering altering some of the tax rules for investment property, such as removing depreciation as a tax deductible expense, making property investment less attractive.

While there is likely to be downward pressure on prices, there remains considerable uncertainty about how far and how quickly prices will fall.

In his January commentary on the housing market, economist Rodney Dickens, of Strategic Risk Analysis, noted: "From a fundamental/valuation perspective, housing in general now offers almost as bad value for investors as it did in late 2007 [at the peak of the boom]. This doesn't mean house prices are about to collapse, although it does mean they are more vulnerable than normal to rising interest rates and economic downturns, while it also means it will be a long, long time before housing in general is a good investment once again."

He said it could take five to 10 years for the property market to return to "sensible prices".

Another factor putting downward pressure on prices is that many people want to reduce debt rather than increase it, making them unwilling to trade up to a more expensive home.

In its December Monetary Policy Statement, the Reserve Bank noted the trend. "Despite a significant upturn in the value of housing turnover, net lending to households has remained relatively muted. Anecdote suggests householders are choosing to maintain their nominal mortgage payments, despite recent interest rate reductions. Furthermore, an unusually high proportion of house sales have been undertaken with the intention of actively reducing debt.

"Continued risks to New Zealand's medium-term outlook are also likely to induce caution in the household sector," the Reserve Bank said.

According to the Reserve Bank, the amount by which total household debt was rising had fallen from $2.1 billion a month in March 2007 to $400m for each of the three months from November 2009 to January 2010, a decline of 81%.