Watch JB's latest NZ property market update below, or keep scrolling to read the full article:
In a nutshell:
- The RBNZ lifted the OCR from 2.25% to 2.50% on 8 July—a tentative first step back toward ‘neutral’.
- Even though the recovery isn't really showing up in the data yet, the foundations are there. Agriculture is doing the heavy lifting right now—but that’s starting to flow into the wider economy, and the construction sector looks set to pick up again from next year.
- With the election coming up, confidence is likely to stay pretty muted for the rest of this year, but the real recovery should build through 2027.
- Once confidence, jobs and immigration line up, we can expect a gradual house price recovery over the coming years—but with affordability better than it’s ever been, it’s a golden opportunity for first home buyers.
*A lot* has happened over the last few weeks.
Interest rates are on the up again, our latest inflation numbers are in, and we’re seeing more signs of life across the economy.
With that said, here’s the latest on what's been happening across the New Zealand housing market, economy and interest rates.
Where are things at with the economy?
The last few years have been tough, so I don't say this lightly—but I think the foundations for a genuine recovery are lining up.
Agriculture’s been going gangbusters for a while now. That’s nothing new.
But we’re finally seeing the benefit start to flow through to other parts of the economy—with businesses around the agri sector reporting improved performance over the past few months.
We’ve also got a huge pipeline of major infrastructure projects set to kick off over the next year or two, which will breathe some much-needed life back into the construction sector.
Once we’ve got more than just agriculture firing on all cylinders, that broader recovery will start to lift wider business confidence (and investment) as well.
Of course, we’ve still got an election to get through.
When you’ve got fringe parties wagging the dog—and no one’s quite sure which way things are going to go—that doesn’t exactly breed the sort of confidence businesses need to be going out and making big investments.
So that’s going to hold things back until the end of the year, but once we’re out the other side, I’m expecting to see a strong recovery kick off from the start of 2027.
When the recovery comes, that could present some challenges of its own.
New Zealand has had net migration losses over the last few years, and with that comes a loss of skills offshore.
Delivering on all these infrastructure projects means we’re going to need workers (and lots of them) from across the full spectrum—project managers, quantity surveyors, engineers, and trades.
Once the economy starts to show strong levels of growth (making us an attractive destination again) it’ll be at least a year, probably longer, before immigration numbers respond accordingly. It’s not a tap you can turn on quickly.
That means, when things get going, any spare capacity in the construction sector will be rapidly absorbed, and we could end up staring down the barrel of skill shortages until we managed to get that balance back.
That's classic New Zealand, though. We're small enough that if too many things land at once, spare capacity gets sucked up fast,
What's happening with interest rates?
The Reserve Bank's (RBNZ) call to lift the Official Cash Rate (OCR) to 2.50% on 8 July wasn't about what's happening in the economy right now.
By its own admission, there’s still plenty of surplus capacity kicking around, and no hard evidence of a broad-based recovery yet.
But the sense is that the turn is coming, and when it does, it could happen quickly.
Usually—after everything we’ve been through over the last few years—that’d be excellent news, but there’s the (not-so-small) matter of inflation to consider.
Latest numbers for the June 2026 quarter, released this week, show annual inflation tracking at 4.1%—it's highest level in two years, and well outside the RBNZ's 1-3% target band.
While most of that’s expected to drop out once the Middle East crisis (and high oil prices) gets resolved—whenever that may be—some of it will stick around for a while beyond that, thanks to the flow-on effect to construction and agri costs.
As our recovery starts to pick up momentum (with agri leading the way and construction not far behind) there’s a risk that inflation could become more embedded, with greater demand allowing businesses to pass higher input costs on through price increases, rather than just absorbing them.
That's what the RBNZ is trying to get ahead of—so starting the transition back to neutral now is a pre-emptive move to make sure inflation doesn’t become a stickier issue.
Even though interest rates are on the up again, it’s important to remember they’re still low by historic standards.
Barring some sort of unforeseeable global economic event (such as the likes of COVID), we’re not going to get back to the lows of 2020 / 2021 any time soon.
But once we’ve transitioned back to a neutral OCR of around 3.00% over the next six months, mortgage rates should settle somewhere between 4.80% and 5.30%, which is roughly where they are now.
What's happening with the NZ housing market?
What we’ve been through is now officially the worst housing downturn in New Zealand’s modern history.
Nominal house prices are down around 18% on average. Real prices (i.e. where house prices would be if they’d kept up with inflation) are down around 30%—more in Auckland and Wellington, where public sector job cuts and a glut of completed new build stock are holding nominal prices down.
The nominal price is what really matters—what your house was worth then vs. what it’s worth now.
But real prices, even though they don’t translate to actual cash in the bank, still have an impact in terms of how wealthy (or not) we’re all feeling.
If we look back at previous downturns, including those post-GFC and 1987 crash, we know that even once interest rates come down again, it typically takes between five to ten years for house prices to recover in nominal terms. In real terms, it’s more like 20 years.
Let’s take Auckland as the example, where nominal prices are down circa 20%.
Best case scenario (i.e. the recovery takes four to five years) we’re in for average house price growth of between 4-5% a year. Some years will be stronger than others, of course, once immigration and job growth returns, and excess stock starts to be mopped up.
Long story short, we’ve got a slow and steady recovery ahead of us, but as confidence returns, the turnaround should start towards the back end of this year.
The good news for first home buyers is that there’s never been a better time to get into the market—and it looks sets to stay that way for a while yet.
Falls in real house prices mean housing affordability is better than it's been in a long time—and that’s not going to change in a hurry, even once nominal house prices start to recover.
As the economy picks up momentum, wage growth should start to pick up too, which will help to offset modest house price growth and keep housing relatively affordable.
Even once excess stock clears, the raft of measures being put in place to maintain a better balance between supply and demand (including the suite of RMA reforms) means we're heading for a repeat of the last cycle where prices took off.
The experience of the last few years I think has done enough to put an end to our collective love affair with property—people have long memories—and that, too, should help to keep the next property cycle a lot more measured.
About the author: John Bolton (JB), Squirrel Founder & Group Head of Property Finance