The Real Estate Institute’s house price index rose more than 40% through the covid period but the index has since dropped about 15% from the peak in November 2021.
RBNZ chief economist Paul Conway told journalists that the central bank thinks house prices are “still a little above what we consider to be sustainable” and the current abundant supply of houses for sale as well as the very cautious attitude towards consumption households are demonstrating should keep house prices in check, at least through this year.
Conway said in the current recovery, lower interest rates, the falling unemployment rate and rising household incomes mean RBNZ is assuming that house price growth will be modest.
The latest monetary policy statement said current low household consumption growth “is consistent with low house price growth constraining household net wealth and low real household income growth.”
The statement said house prices have continued to edge downwards lately, despite lower mortgage rates and a modest pick up in housing market activity.
“This possibly reflects weak population growth and elevated long-term interest rates.”
It noted that the flow of mortgage borrowing priced in the one to two-year terms increased substantially since November last year with the average mortgage rate falling to 5.1%.
RBNZ has cut its official cash rate (OCR) from 5.5% to 2.25% since July 2024.
Assistant governor Karen Silk said that the average mortgage rate may fall further but not to the same magnitude as it has been, “maybe 20 or 30 [basis] points at most.”
RBNZ’s monetary policy committee has highlighted the risk that household spending could be slower to recover than it currently assumes, particularly if house price growth remains subdued.
“This could lead to households continuing to maintain higher levels of precautionary saving.”
The statement said that residential investment increased in the September quarter from low levels and that this was slightly earlier than it had expected.
“This is consistent with strong growth in building consents over the second half of 2025 and other signs of increasing housing demand, including household credit growth.”
It said that the move to longer-term fixing of mortgages may have pushed up wholesale swap rates to be higher than they otherwise would have been.
“This is because commercial banks hedge the interest rate risk of a fixed-term mortgage. Increased demand by commercial banks to hedge interest rate risk in the swap market can push swap rates higher.”
The share of new mortgage lending being fixed for at least one year increased from about 40% in November to about 70% in December, “likely due to households deciding to fix for longer terms in anticipation of higher interest rates in the future.”
RBNZ said close to 40% of fixed mortgage lending is due to be refixed in the first half of 2026.
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