ANZ NZ economists say a small decline in house prices this year is 'the most likely scenario'

ANZ New Zealand's economists are continuing to pick an overall 2% decline in house prices this year and three hikes in the Official Cash Rate (OCR) starting from July.

In their latest Property Focus Report, the economists admit that their pick of a 2% fall in prices could yet prove unduly pessimistic, but say the challenges the housing market is facing make a small decline in prices the most likely scenario.

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

"Talk of slowing economic growth, rising interest rates and the prospect of a potential Capital Gains Tax at this year's election all point to the housing market staying subdued," the report says.

"The conflict in the Middle East and the resulting surge in fuel prices presents a hit to real incomes, confidence and job security, which is clearly a negative for the housing market," it says.

"The bigger negative for the housing market however, is likely to come from upward pressure on interest rates," it says.

"Inflation was already lurking troublesomely above the Reserve Bank's target range at 3.1% before the [oil price] shock, and is now set to go much higher - we see it peaking at 4.4% in the second quarter 2026," the report says.

ANZ's  economists continue to pick that the Reserve Bank will start hiking the OCR in July, which they expect to be the first of three increases this year, but have scaled back their expectations of where the OCR will sit at the end of the year to 3%, from their previous forecast of 3.5%, due to a weaker economic growth outlook.

"Based on our forecast for the OCR, we anticipate mortgage rates will continue to lift through this year," the report says.

"Even though we don't see interest rates going to the high levels experienced in the wake of the [Covid] pandemic, we think they will go high enough to restrain house prices," it concludes.