The Reserve Bank’s admitting to being surprised that house prices haven’t been increasing as they expected, while also saying that only about half of the impact of the interest rate cuts made since last year has so far been transmitted through into the economy.

The RBNZ’s now, in fact, forecasting that house prices will fall 0.3% for the full 2025 calendar year, after quite a big reversal since its last issued forecasts.

The new forecast is contained in the data accompanying the RBNZ’s latest Monetary Policy Statement (MPS).

In the previous MPS, issued in May the RBNZ had forecast a 3.5% rise for 2025, while earlier forecasts – at the end of last year were for just over 7%.

The RBNZ sees prices start to rise again next year, up 3.9% by the end of 2026 and 5.0% by the end of 2027.

At the media conference on Wednesday, after the RBNZ had lowered the Official Cash Rate (OCR) to 3.0% and signalled it may go to 2.5% by the end of the year, RBNZ chief economist Paul Conway said “normally we would expect house prices to be increasing a bit more at this point in the cycle but they are not. We are not expecting them to increase a great deal over the coming 18 months”.

“When you look at household consumption it is very highly correlated with changes in what’s going on in the housing market, so, there’s a bit of an open question there. Can the New Zealand economy grow without that sort of wealth effect coming through from housing?”

Assistant Governor Karen Silk said of the 250 points of cutting that have been done to the OCR [taking it down from 5.5% as of last August to 3.00% now] “we’ve probably seen 50% of that transmit through, so, there’s another 50% still to go.

“So, there’s certainly still more stimulation still to come that will support freeing up of disposable income at the household level and eventually feed into house prices and residential construction as a consequence of that as well.”

In terms of the slow transmission of the lower interest rates, Silk said “there’s a couple of things that we would probably call out”.

“The first of those is consumer behaviour itself. If we think about what’s actually happening in terms of refixing mortgage rates, people have opted to stay in shorter terms, on demand, or up to six months at much higher rates in the belief that they would come lower before they started to move out [their terms].

“So, as that happens it means that your transmission is actually slower than you would anticipate.

“That’s changing. So, what we are now seeing is households move to refix for longer terms at much lower rates and that’s why we see the average stock rate coming down over the next 12 months.

“So, if we saw it peak at 6.4%. It’s probably running about 5.6% now and it will be in 12 months time slightly below 5%. So, there’s that aspect of it coming through.”

Silk said the second aspect to the slowness of transmission was what’s happening with disposable income for households.

“So, what’s happening with electricity prices, what’s happening with rates, what’s happening with food prices. So you are getting a little more contraction there. So, money is going from discretionary spending into maintaining what they would regard as essential requirements that they need to do. So, there’s a little bit of that going on as well.”

Governor Christian Hawkesby noted that monetary policy “lags” are “long and variable”.

“There’s a lot of uncertainty about how quickly these things will work through.

“That’s what gives us the confidence that when we say monetary policy works, we say that interest rates low or high do have an impact and you’ve just got to have confidence it will work its way through.

“The challenge is there will be other things that go on along the way and that’s where we need to constantly re-adjust or recalibrate about whether we have done enough or we need to do more and particularly in the zone that we are in at the moment where we’ve done a lot in a rapid period – now we start feeling our way.”