ANZ's latest Property Focus report forecasts 2% drop in house prices this year, warns of potential for further increases in mortgage rates

ANZ New Zealand's economists are expecting a 2% fall in house prices this year.

In the latest ANZ NZ Property Focus report, they note a "nascent recovery" in the economy, but warn it's now facing "extreme uncertainty" due to the Middle East war and the flow on economic impacts.

"Challenges for the housing market come in the form of confidence about the economic outlook (read: job security) and upward pressure on mortgage rates," the report says.

"The increase in wholesale swap rates has been sharp and has already started to feed into higher mortgage rates even as the Reserve Bank has said it is happy to wait and see how things play out for now," it says.

"Much depends on how long the conflict in the Middle East restricts global oil supply, but given these new headwinds in the housing market, we now expect a 2% fall in house prices over 2026," the report says.

That's a complete reversal of their previous forecast of a 2% increase in house prices this year.

ANZ NZ is the country's biggest mortgage lender with total loan exposure of $115 billion as of December 31 last year.

The report also notes house prices have already been flat for some time.

"House prices continue to go nowhere fast," it says.

"While the seasonally adjusted Real Estate Institute of New Zealand House Price Index lifted 0.6% month-on-month in February, it's part of an extremely patchy run - prices have been flat or falling for eight of the last 10 months."

"But nothing else in the market suggests we'll see rising prices from here - there are plenty of new listings compared to sales, the length of time it is taking to sell a house has been rising and fewer homes are selling at auction," the report says.

On the mortgage rate front, the report says there is risk of further increases, with recent rises in fixed rates driven by sharp increases in wholesale rates.

"As unwelcome as the rise in some some fixed mortgage rates will be to readers, those rises have been much tamer than rises seen in wholesale rates," the report says.

"Unless we see a sustained de-escalation in the [Middle East] conflict, given how far wholesale rates have risen, the risk is that mortgage rates may rise further over coming weeks," the report warns.