In their latest weekly analysis, the bank's economists point to a lack of saving by Kiwis reducing the level of available funding for home lending.
"While the housing market is on a tear for now, we don’t expect this will last long. New Zealanders are keen to borrow, but less focused on saving," the economists said.
The lack of saving has "crimped the amount of funds coming back into the banking system", and has "resulted in upwards pressure on mortgage rates independent of a change in the official cash rate", the bank said.
A rise in mortgage rates and falling migration figures are likely to keep a lid on the housing market through the year, Westpac economists, including Dominick Stephens, said.
"We expect a further rise in mortgage rates over 2020. At the same time population growth is continuing to gradually trend downwards. Together, those conditions are likely to see house price inflation slowing again through the back half of this year."
The bank believes "now is a good time to take a fixed mortgage", as wholesale rates begin to creep up, "as the chances of further OCR cuts fade". It says one and two year rates offer the best value in the present market.
"Among the fixed rates on offer, we think the best value is in the one and two-year rates. Longer-term rates are high relative to where we think future short-term rates will go," the economists added. "That said, fixing for longer terms does offer security against future interest rate increases, and therefore may be preferred by those with low risk tolerance."