BNZ tips lower mortgage rates, slower housing gains
BNZ said New Zealand’s housing market remains “creaky and tentative,” with lower mortgage rates helping boost activity but not prices.
Recent signs of economic stabilisation have supported this gradual recovery.
New Zealand’s GDP rose 0.8% in the March quarter – slightly ahead of forecasts – while property sales volumes have climbed. However, high property listings and lingering economic headwinds are keeping a firm lid on price growth.
National house sales hit 6,800 in May (seasonally adjusted), up 15% year-on-year and in line with the long-run average.
“Transactions in some regions, like Waikato and Canterbury, are well above average (10% and 30% above, respectively),” BNZ chief economist Mike Jones (pictured) said.
Owner-occupiers are showing more interest, making up 60% of new lending, while first-home buyers have retreated slightly.
Despite stronger turnover, house price growth remains sluggish. The REINZ House Price Index rose just 0.1% in May – its seventh consecutive monthly gain – but cumulative growth over that period was only 1.4%.
Oversupply continues to weigh on prices
“Prices are rising but they’re doing so at a glacial pace,” Jones said, adding that “unsold inventory remains around 10-year highs” and continues to suppress pricing power.
BNZ noted regional variation, especially in townhouse-heavy markets like Auckland and Wellington, where high inventory levels are expected to hold back prices longer.
“Recent local council property (de)valuations in Wellington and now Auckland just reinforce this tilt in the balance of market power,” Jones said.
Demand showing signs of weakness
While supply pressures persist, demand may be softening too. BNZ has downgraded its 2025 GDP growth forecast to just 0.8%.
“Weak labour market conditions drag on… job ads are still crawling along 11-year lows… and elevated job insecurity” is affecting sentiment, Jones said.
Sluggish net migration is also playing a role, with population growth likely to remain under 1%.
“We think these weights on housing demand will continue to lean against the strong support coming through from falling mortgage rates,” Jones said.
Price growth forecast: Slow and steady
BNZ is now forecasting annual house price growth of 2-4% in 2025, rising to around 5% in 2026. Even with that, inflation-adjusted prices are expected to remain 24% below their 2021 peaks.
“Inflation-adjusted house prices would end this year around the same level as mid-2020,” Jones said.
Mortgage rates: floating may fall, but slowly
With 225bps in OCR cuts already delivered, BNZ expects the Reserve Bank to lower the rate to 2.75% by August. But global uncertainty may prompt the RBNZ to pause in July.
That would see floating mortgage rates “bottom out in the low 6s in coming months,” Jones said.
Fixed rates falling at shorter terms only
As expected, mortgage rate declines have concentrated in terms under two years.
“Our forecasts have six-month and one-year fixed mortgage rates easing further into a 4.50–5% range by the end of the year,” Jones said.
However, longer-term rates are unlikely to fall much further unless new economic shocks emerge.
Borrowers weigh short vs. longer terms
Borrowers are increasingly considering longer fixed terms, with just 68% of new loans now fixed for a year or less – down from 94% in November.
“There may be a less favourable risk/reward in shorter-term mortgage fixes,” Jones said.
While fixing short can provide more flexibility, it comes with higher up-front rates.
Breakeven analysis suggests small rate drops are needed to make the strategy pay off.
“For many borrowers… the potential payoff involved in going short… may not be worth the reduced certainty,” Jones said.
Spreading risk across several terms remains a valid strategy.
Regional trends converging
BNZ’s regional heatmap shows the South Island is still outperforming on prices, but the North Island is catching up in terms of market activity.
“Convergence has been the most obvious theme… the previously cooler climes of the North are thawing while the degree of Southern outperformance… has lessened,” Jones said.
