Increased cost of living has "hit the average Kiwi pretty hard in the pocket"
New Zealand's housing market remains in the doldrums despite significant mortgage rate reductions, with the latest REINZ data for May revealing a mixed picture of modest price gains overshadowed by declining sales and lengthening settlement times.
The national median house price fell 0.9% year-on-year to $763,000, while property sales increased 8.9% compared to May 2024, rising from 6,579 to 7,166 transactions. However, the seasonally adjusted data tells a more concerning story, with house sales dropping 2.4% month-on-month – the first decline of 2025.
Auckland bore the brunt of the market softness, with its median price declining 3.5% annually to $975,000 and sales plummeting 7.6% in May after three months of growth. The city's housing market appears to be struggling more than the rest of the country, where excluding Auckland, the median price held steady at $689,000.
ASB economist Yen Nguyen described the data as painting a "gloomy picture," noting that seasonally adjusted house prices increased just 0.1% in May despite seven consecutive monthly rises. "There seems to be a housing supply glut that the market is struggling to clear – new listings and inventory increased again, and the time it takes to sell a property has become longer," Nguyen said.
The sluggish market response has puzzled analysts given mortgage rates have fallen substantially since the Reserve Bank began cutting the Official Cash Rate in August 2024. Average one-year fixed mortgage rates are now about 2% lower than a year ago.
Bank lending shows mixed signals
Claire McArthur, senior mortgage adviser at Claire MacArthur Mortgages said that while banks are still actively lending, the approval process has significantly slowed. "We've seen bank turnaround times since January through to now pretty much double. In January, you could have gotten a loan approved in 3-5 days, and now we're talking 7-12 working days," she said.
"That indicates there's definitely more activity in terms of approvals – though there's still the question of whether or not they're using those approvals to go and buy property. First-home buyers are still very much a strong feature of the market though, and are making up a significant chunk."
The median number of days to sell a property nationally increased to 47 days, up from 44 days in April and significantly higher than the 33-day peak recorded in November 2021. Wellington recorded the longest selling times at 46 days, though the capital showed some signs of life with house prices lifting 0.6% in May after four consecutive monthly declines.
Regional performance varied significantly, with Southland leading price growth at 10.0% year-on-year, while Manawatu-Whanganui saw the steepest decline at 5.4%. Northland recorded the strongest sales growth, up 33.3% annually.
Cost pressures offset rate relief
Despite lower mortgage rates providing some relief, McArthur notes that rising living costs are constraining buyers' purchasing power. This at least partially explains the difficult recovery, despite lower rates.
"For some the lower rates have come through and that's been great news, but that's almost been offset by higher living costs,” she said. “There have been really big increases in council rates, household insurance costs, and electricity costs. That's hit the average Kiwi pretty hard in the pocket.”
The cautious buyer sentiment reflects broader economic uncertainties, with ASB pointing to labour market weakness and rising job insecurity as key factors dampening confidence. "Rising job insecurity and easing wage growth continue to weigh on home-seekers' confidence in making buying decisions, especially amid heightened global uncertainties," the bank's analysis noted.
Population dynamics are also playing a role, with increasing numbers of New Zealanders departing and slowing migration inflows reducing housing demand while lifting available stock. New listings increased 2.9% year-on-year to 9,489, contributing to inventory levels rising 5.6% to 34,415 properties.
McArthur noted that buyers are taking a more measured approach compared to previous years. "House values and sale prices have dropped off, and people are taking a bit more time to make a decision. There's not as much panic or FOMO as we've seen in previous years," she said.
Looking ahead, ASB expects the housing market will gradually recover over 2025, supported by lower mortgage rates, though persistent headwinds continue to face the sector. The bank suggests the sluggish housing market and weak domestic demand could prompt further Official Cash Rate cuts, though this remains dependent on the Reserve Bank's inflation concerns.
The House Price Index sits at 3,601, showing minimal 0.1% year-on-year growth. Overall, it looks like it’s going to be a particularly quiet winter.
