The housing market is "horrible" and as an economic barometer points to a "summer of misery", with the Reserve Bank likely to keep the official cash rate on hold till the middle of next year, according to an independent economist.

House prices were down by almost 1 per cent in the past month and 3.5 per cent for the year, according to Real Estate Institute price index figures.

Floating mortgage rates have trended up in the past few months, which was seen as a key driver in the market slowdown.

October sales volumes have fallen below 4000 for the first time in more than a decade.

For two months in a row, sales volumes have fallen more than 7 per cent, which independent economics group NZIER said was shocking, even given the impact of the Canterbury earthquake.

NZIER said extremely low house sales showed a lack of confidence, leading to a lack of spending and demand, which was holding back the economic recovery.

"It looks like it is going to be a summer of misery where the economy is going to be doing it pretty tough," principal economist Shamubeel Eaqub said.

"The household sector is not yet ready to go out and spend", despite recent tax cuts.

The economy was languishing, with a "classic failure of demand" when it should be picking up after the recession, he said.

Infometrics economist Matt Nolan said the drop in the house price index showed the market was looking like "trash".

Seasonally adjusted Infometrics estimated prices were down 1.3 per cent in October alone.

"That is pretty ugly," he said. However, with such low volumes it was not a clear picture of the whole market. Many people would just sit on their property because they had no need to accept a lower price.

House prices were down about 7 per cent from the peak of the market and Infometrics is forecasting prices to fall another 6.6 per cent over 2011. The job market was weaker than expected and households remained cautious, Mr Nolan said.

NZIER's Mr Eaqub said the state of the housing market showed the Reserve Bank's decision to start the OCR in June was a huge mistake. And any rush to increase rates even more would be another mistake, until there was a clear lift in demand.

At the lowest rate of about 6.15 per cent floating mortgage rates were not "cheap" and the Reserve Bank should hold rates "for quite some time".

He said NZIER may be the first to push out its forecast for the next rate rise to June, from March, but it was still working through the numbers.

ASB Bank said at present sales levels, it would take almost 15 months to clear the stock of homes on the market, excluding Canterbury.

"The market remains tipped in favour of buyers," ASB said, but it still expected the Reserve Bank to start lifting rates as from March.

ANZ Bank economists said if current house price weakness continued, it would weigh on household spending, with the implication that the Reserve Bank could leave the OCR s on hold for longer than the first few months of 2011.

Hutt Valley Professionals real estate company owner John Ross said the local market was patchy and it was hard to measure trends because of the low volumes.

Sellers had had to decide how long they were willing to wait before selling, because there were plenty of other homes in the market in competition.

Sometimes sellers could drop their prices by as little as $5000 or $10,000 before sparking interest from a number of buyers, he said. "It is price sensitive," Mr Ross said.

The time to sell was no worse than last year but it was the third year of a slow market.

- © Fairfax NZ News