ANZ says Middle East conflict will mean house prices fall

ANZ now expects New Zealand house prices to fall 2% in 2026. Photo / Getty Images

By Susan Edmunds of RNZ

ANZ says it now expects house prices to fall this year as conflict in the Middle East means lower household confidence and upwards pressure on interest rates.

The bank’s economists said in their latest Property Focus update that before the war broke out, consumer confidence had lifted back to what could be considered normal after four years in the doldrums.

Improved economic sentiment and greater job security had looked like they were going to support housing demand this year.

The bank had earlier forecast an increase in prices of 2%, although that was still downgraded from an earlier forecast of a 5% lift.

However, with global oil prices soaring and wholesale mortgage rates lifting, that had now changed.

Even without the Official Cash Rate rising, interest rates being charged to borrowers had increased in recent weeks.

“One way or another, lower household confidence and upward pressure on mortgage rates as a result of the oil shock will weigh on a housing market that was already short on momentum before the conflict. We have now pencilled in small falls in house prices over coming months, leaving house prices down 2% over 2026.

“A protracted conflict in the Middle East could see a steeper fall in house prices, but equally, a quick resolution within the next month or two could see the market stabilise sooner. We continue to see a modest increase in house prices as likely from 2027 onwards as an economic recovery settles in.”

ANZ senior economist Matthew Galt said the conflict would knock confidence for potential house buyers as well as stoking inflation fears.

“The housing market’s basically been flat for three years. And even before the conflict in the Middle East broke out, prices were more or less flat. There was no momentum in the market. And so this is just another factor that will shift it even more in favour of buyers.”

ANZ’s economists said there was a risk that home loan rates could rise further than they already had.

“Unless we see a sustained de-escalation in the conflict, given how far wholesale rates have risen, the risk is that mortgage rates may rise further over coming weeks. At this stage, we see it as a risk rather than our central scenario, but given the magnitude of the moves, it can’t be ignored.

“Our hope is that we do see a de-escalation, and if we do, while we still expect mortgage rates to rise, that is likely to occur more gradually than if we see an escalation.”

They said that because mortgage rates had lifted from their earlier lows, there was less value in fixing for long periods. But the two-year rate offered a mix of value and certainty.

Fixing longer would only be cheaper if rates rose more than the bank was expecting.

“No one really knows what’s going to happen in the Middle East,” Galt said. “If we have a faster resolution of the conflict then that could see the economy be stronger. On the other hand, if the conflict drags out, that’s bad news for New Zealand.”

– RNZ