The volume of houses sold last month dropped 10 per cent from a year earlier as the number of properties on the market continued to shrink, according to the Real Estate Institute of New Zealand.
There were 7299 sales in July, 10 per cent lower than the same month a year earlier, and down a seasonally adjusted 3.6 per cent in the month.
Inventory shrank by a third, though steady demand meant prices continued to rise in the month, with the median sale price of $505,000 up 8.6 per cent from a year earlier, or a 1 per cent seasonally adjusted increase from June.
"Sales volumes remain below previous periods as the continued shortage of supply impacts buyers who are struggling to find properties to buy," REINZ spokesman Bryan Thomson said in a statement.
New Zealand's housing market is seen as posing a threat to the country's financial system with the cost of servicing increasingly large mortgages making the Reserve Bank uneasy about household balance sheets.
Governor Graeme Wheeler signalled plans to introduce restrictions on highly-leveraged lending to property investors, something the banks adopted late last month.
One of the central bank's biggest concerns has been Auckland where a lack of housing coincided with a record net inflow of new migrants, pushing up prices faster than elsewhere.
Data show the median Auckland sale price was $825,000 in July, up 12 per cent from a year earlier, while sales volumes were down by about 20 per cent at 2520.
Prices gained the most in Central Otago Lakes, up 32 per cent to $660,000, while volumes fell 12 per cent to 129, followed by the Waikato/Bay of Plenty region, rising 26 per cent to $450,000 from a year earlier, with a 14 per cent fall in sales to 1335.
Canterbury Westland posted the smallest increase in prices, rising 2.4 per cent to $425,000 from a year earlier on a 2.3 per cent decline in sales to 900.