BNZ economists are now expecting house prices to rise just 2% in this calendar year after earlier forecasting a 5% gain.
And they say even the new, lower, 2% forecast has "downside" risk.
In his latest Property Pulse publication, BNZ chief economist Mike Jones says last year’s "short string" of monthly house price gains "now look like a false start".
"And we think current scratchy momentum will stick around for longer amid high mortgage rates, a deteriorating economic and labour market backdrop, and a jump in unsold inventory," Jones said.
He still expects a more obvious upswing next year and is forecasting that house prices will rise 7% in calendar year 2025.
Jones said the latest Real Estate Institute of NZ (REINZ) housing data had showed the House Price index (HPI) recording "essentially no growth" from January to April (adjusted for seasonality).
"That leaves house prices holding about 3% above the February 2023 cycle low."
He noted the elevated level of activity among first home buyers (FHBs), but investors, by contrast, "are less interested".
"New investor lending diverged noticeably from that of FHB in 2022 and has tracked down to about 16% of total. In absolute terms, it has yet to substantively recover from the lows struck around the start of 2023.
"Any positive impact on investor demand from the new government’s change in investor tax policies, so far, seems to be being offset by the cash flow hit from high interest rates and soaring insurance, rates, and maintenance bills.
"The anecdote points to investors remaining on the sidelines in the short-term. It’s possible we see a lift in investor selling intentions once the Brightline Test shifts back to two years in July, but we’d expect this impact to be small."
Weighing up all the various pros and cons, Jones says house price fundamentals "are overall less supportive than at the time of our last update".
"Economic and labour market conditions have deteriorated, mortgage rates are set to stay higher for longer, and the jump in unsold inventory will take time to work off.
"We’ve shaved back our 2024 house price inflation expectations as a consequence.
"Further ahead, we remain of the view the current period of house price stasis will eventually give way to a clearer upswing in prices.
"Most important in this regard is our view that mortgage rates will start trending lower next year. More demand-friendly housing policies and a recovering economy will add support.
"Acting in the other direction, affordability and cash flow constraints will cap the magnitude of the upturn."
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.