Mortgage rates will rise "significantly" in the years ahead, a leading economist is warning, and it may deliver a killer blow to the housing market.

Westpac chief economist Dominick Stephens said in his latest market update that he was convinced interest rates would rise before too long.

Interest rates were the most important drive of house prices, he said, and could not keep falling forever.

Banks have competed over recent weeks to offer advertised home loan rates below 4 per cent.

While the current environment might give house prices a short-term boost, he said, it could not last.

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By the 2020s, Stephens expected the official cash rate to have risen to 3 per cent, boosting home loan floating rates by 125 basis points and two-year fixed rates by 100 basis points.

"At that point, we expect the housing market to be severely impacted."

MARTIN DE RUYTER/STUFF Once interest rates start rising, house prices will suffer, one economist says.

"The other reason to be circumspect on the long-run outlook for house prices is government policy. We were surprised that [this week's data showed no evidence that the foreign buyer ban, which came into force in late October, is affecting the market.

"However, we do believe that the ban will have a bearing on house prices eventually. Next year the market will be impacted by changes to the rules around tax deductions for property investors. And if a capital gains tax is introduced, the impact on house prices will be large. Even though the short-term outlook for house prices is positive, the long-term outlook remains negative."

Stephens said his team's prediction was for house prices to drop 3 per cent a year, with a total decline of 5 per cent over three years.

The latest Real Estate Institute data showed Auckland house prices were up 1.8 per cent year-on-year, and the rest of the country was up 8.9 per cent.

Independent economist Cameron Bagrie said he expected little action from the housing market over the next five years.

"It's a combination of structural changes across the market and credit not being the big driver it once was."

Some of the world's most unaffordable cities had already "hit the reverse button", he said, and affordability constraints would keep the pressure on Auckland in particular.

"If we can get away with Auckland being flat and affordability improving through incomes moving up that will be a success story."