Little growth for the rest of this year expected

More investors and owner-occupiers moving into better homes are in the market drawn by low interest rates and house prices barely moving. First home buyers have retreated after being the strongest force earlier this year.

ANZ, the country’s biggest mortgage lender, and BNZ have downgraded their house price forecasts for the rest of the year.

The ANZ is now forecasting just 2.5% price growth while the BNZ has dropped its forecast to between 2-4%. For next year both the banks reckon there will be 5% growth.

ANZ says it revised its outlook because indicators of the balance between supply and demand continue have drifted drift sideways.

About 1% of its predicted 2.5% growth occurred over the first five months of the year.

The bank’s chief economist Sharon Zollner says the RBNZ’s 225bp of OCR cuts in this easing cycle (from 5.5% to 3.25%) has certainly been a tailwind to the housing market.

“Along with easing credit conditions, this has seen house sales volumes lift towards their historical average and house prices stabilise following declines in 2024.

However, the upswing in house prices has been muted compared to other recent easing cycles, she says. 

"We expect that the housing market will heat up a touch next year following further OCR reductions and a strengthening and broadening economic recovery, leading to more significant increase in house prices of five per cent over 2026," says ANZ.

Flat is an oversimplification

Price gains remain glacial, Mike Jones BNZ chief economist says.

"Stirring a shakier demand backdrop in with our existing concerns about elevated supply, points to this dynamic continuing," he says.

"We've shaded our 2025 annual house price inflation forecast down to a 2-4% range accordingly. Previously, it was 5-7%.

Jones says to say the overall market is “flat”, is an oversimplification. “There is clearly evidence of an interest rate-related boost in the increased number of property transactions taking place, and the associated jump in lending to the sector.”

Transactions in some regions, such as Waikato and Canterbury, are well above average –10% and 30% respectively.

Importantly, says Jones it looks as if mortgage rates have fallen to a level that is finally stirring more interest amongst the heavyweight owner-occupier segment of the market at 60%
of new lending.

Investors remain active too, while first- home buyers have retreated a touch. The latter now
account for 20% of new lending, down from the 25% peak.

Jones says high frequency data point to a concerning sag in demand through the middle part of the year.

He says some of this might be temporary owing to the April and May gyrations in US tariff policy.

“Further falls in floating mortgage rates are likely, but with the end of the easing cycle coming into view, the extent of these expected falls is now more limited.”

The RBNZ could pause the easing cycle this month to buy more time to assess developments in the New Zealand economy and overseas tariff wars.

Consensus for the OCR low is now 3% and Jones says the BNZ’s best guess is that carded floating rates will bottom out in the low 6% range in the next few months, while the six month and one-year rates will ease further into a 4.5-5% range. There is limited potential for declines in longer-term interest rates.