Interest rates ‘be careful what you wish for’ scenario playing out

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ANZ economists have updated their forecast for the year ahead. File picture.
Photo: RNZ / Marika Khabazi

Falling interest rates are unlikely to be enough to boost house prices through the rest of this year, the country’s biggest bank says.

ANZ’s economists have updated their forecast for the year ahead.

Instead of 1 percent house price growth over this calendar year, they expect a drop of 1 percent.

They said while they had brought forward their expectations for an official cash rate cut from February to November – and there was a chance it would be earlier still – that was because the economy was weaker than expected, which would have an effect on house prices.

“On the one hand there appears to be a slightly brighter sliver of light at the end of the interest rate tunnel but on the other hand the reason it’s there is that the economy and household sector is looking a lot softer.

“This is the ‘be careful what you wish for’ scenario that we’ve been flagging for quite some time – albeit in relatively modest form.”

That weaker economy was likely to outweigh the impact of lower mortgage rates on house price growth in the very near term, they said.

“Given there’s still residual softness to flow through to the labour market, the subdued outlook for household incomes, job security, and accordingly, the appetite to borrow is likely to contain any near-term resurgence in house prices.”

While new listings were holding up, sales were at their second-lowest level for this time of year in data back to the early 1990s.

But they said that was likely to mean there was more scope for recovery in house prices in 2025, as home loan rates fell. They now expected a 4.5 percent price increases next year, followed by 5 percent over 2026.

They noted that one-year home loan rates had fallen on average below 7 percent and two- to five-year rates were below 6.5 percent. “With larger falls in store, we think it still makes sense to consider fixing for a shorter period even though it costs a little more now, to save more money later.”