ANZ's economists are expecting only modest house price growth over the next couple of years.
"We remain of the view that house prices will gradually strengthen," they say in their latest Property Focus report.
"Central to this is our expectation that the RBNZ will end up reducing the OCR more than the Monetary Policy Committee currently expects, which will support house prices, through both lower mortgage rates and a cyclical economic recovery," the report says.
"We are forecasting a 25bp cut not only in August but also in November and a final cut in February to take the OCR to 2.5%, though we are describing that one as 'pencilled in' and contingent on how global factors affect the domestic economy," it says.
However the report also stresses the modest nature of future price increases.
"Our baseline forecast for 2026 is that house price inflation won't race away," it says.
"The sorts of changes in interest rates that really move the housing market are those that are expected to last for a long time and consequently get priced into longer term interest rates - this was an important factor behind the housing market upturns in 2014-2016 and 2018-2021.
"This time around, the drop in longer term interest rates has been more muted, with rates such as the five year mortgage rate dropping only around half as much from their late-2023 peak as short term interest rates have.
"In part, this is because longer term interest rates are heavily influenced by global long term rates, and these haven't fallen as much as New Zealand's OCR.
This is making the current interest rate easing cycle less potent for the housing upturn that other recent easing cycles," the report says.
The report also point to other factors that will help moderate rising house prices.
"Other factors will also constrain how rapidly house prices can increase, including ongoing affordability constraints and debt-to-income limits capping the upside to borrowing capacity," it says.
"However, a lower OCR and cyclical economic recovery are likely to see prices increase modestly over the next couple of years," the report concludes.
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