ANZ NZ economists say house prices will keep falling for longer than they previously expected

ANZ New Zealand's economists have downgraded their house price forecasts for the rest of this year and the first half of next year.

Previously they were expecting house prices to end 2026 down 1% from the start of the year. But in their latest ANZ Property Focus report they say they are now expecting prices to have declined by 2% over 2026.

"Ever since oil prices spiked back in March, we have thought that house prices will likely end 2026 slightly lower than they started," the report says.

"We were surprised at the resilience in house prices through the middle of the year, and in August pushed some of the weakness in our house price forecast out to next year. However, the latest data shows that prices are clearly drifting downwards," the ANZ NZ economists say.

"The recovering economy is unlikely to be enough to offset the headwind of higher interest rates on house prices. Having added OCR hikes to our forecasts late last month, and given the weakness in recent housing market data, we now expect house prices to drift mildly lower until the middle of 2027."

"Specifically, the REINZ House Price Index is already 1% lower than it was in January and we anticipate that further small declines over the next few months will see prices end 2026 around 2% lower than they started... we then expect further small falls over the first half of 2027 before prices flatten off, leaving them down 1% over 2027 compared to our previous forecast of a 2% rise."

On the interest rate front, the report says there are three reasons ANZ NZ's economists expect the Reserve Bank (RBNZ) to raise the Official Cash Rate (OCR) three more times.

"First, oil prices have returned to high levels, posing upside risk to inflation well beyond the initial impact on petrol prices," the report says.

"Second, the exchange rate has fallen well below where the RBNZ assumed it would be, putting upward pressure on import prices more generally.

Third, the economy is growing consistently even if it can't be described as especially strong overall at this stage and it's very patchy, with export oriented sectors doing very well while consumers remain cautious in the face of the cost of living shock," the report says.

On the mortgage front, the report says borrowers are facing a familiar dilemma.

"The broad quandary facing homeowners is the same as a month ago: Fixing for longer costs more but comes with certainty."

"Higher oil prices speak to the possibility that the OCR may have to go higher than we and the market expect and/or remain elevated for longer."

"Weighing these risks up, we see merit in fixing for 2-3 years, which isn't much more expensive than fixing for one year," the report says.

ANZ NZ is the country's biggest home lender, with loans of $118 billion as of June 30.