The bank's latest mortgage rate forecast predicts that within 12 months, home loan rates on one and two year fixed terms will drop to about 1.5%.
The expectation of low rates comes as the Reserve Bank signals plans for a term lending facility to banks, and warms to the idea of a negative official cash rate. The measures are likely to push home loans down below existing record lows.
The Reserve Bank measures are likely to be introduced as the Covid-19 pandemic causes upheaval in the economy.
Negative rates will only affect wholesale markets, and there is no prospect of retail rates going negative. Banks will remain under pressure to keep term deposits in positive territory, and will face squeezed margins.
The second lockdown in Auckland has prompted ASB to predict a fall of roughly 1% across fixed rate terms. In a year's time, five year rates could be as low as 2.5%, according to the bank's analysis.
The bank believes low rates will boost the housing market over the next year.
It has revised down its prediction of a 6% drop in house prices. The bank now expects house prices to fall 2.8% by March.
The lender's economists, including Mike Jones, predict a home lending boom, with banks lowering credit hurdles alongside the rate cuts.
"Falling mortgage rates provide powerful stimulus to the housing market," Jones said. "This seems to be especially so now that structural, or long-run, mortgage rate assumptions are being revised lower. For example, banks are bringing down the hurdle rates that they test prospective borrowers’ income against."
"RBNZ data also show that over 50% of mortgages are due to re-price onto lower rates over the coming 12 months. Accordingly, stimulus for house prices from this source will continue to flow for most of 2021," the report adds.