Despite lower mortgage rates, high inventory means prices have remained fairly flat
New Zealand’s housing market stayed subdued through August, with fresh REINZ data showing flat prices and falling sales. ASB economist Yen Nguyen (pictured above left) said the figures show persistent weakness despite steep interest rate cuts, while Cotality chief property economist Kelvin Davidson (pictured above right) pointed to longer-term supply trends as a reason for cautious optimism.
The seasonally adjusted House Price Index was unchanged in August, following two months of declines. Annual growth sat at just 0.4%. House sales fell 3.9% from July and were 3.7% lower than a year earlier, marking the first annual drop since mid-2024.
Inventory is at a decade high and properties are taking slightly longer to sell.
“Overall, there is no positive news from the August results, which still indicate a subdued housing market, despite the 250bp reduction in the OCR and significant declines in mortgage interest rates,” Nguyen said.
“The fundamental story of headwinds and tailwinds remains unchanged, and these are unlikely to shift anytime soon.”
Population growth and supply pressures
Commenting on supply and demand in Cotality’s latest data, Davidson noted that the high inventory is at least down to slow population growth - however, we can expect this to shift.
“Population growth is quite low across the country at the moment because net migration is low, but it will start to come back,” Davidson told NZ Adviser.
“There’s still a wide range of stock. We do have more townhouses now than what we used to have, and there’s more choice for buyers across a range of different property types. I think that's pretty good news.”
Long-term supply measures, including government efforts on land and consenting, are also reasons for confidence. Still, Davidson said that this all largely depends on long-term commitment which isn’t always possible within our election cycle.
“Government measures round land supply and consenting processes take some time, but there’s every reason to be positive about those in the medium to long term,” he said.
“Will they have an impact tomorrow or the next day? Probably not, it’s more about the long term. I’m optimistic about it.
“Of course, the big caveat is that we’ve seen various governments in the past try to take steps on housing supply and if they lose an election, it all gets thrown out,” he said.
“Supply measures are slow-moving, longer than our political three-year electoral cycle, whereas housing demand shifts very quickly.”
The outlook
Economists largely expect the market to remain muted through the rest of 2025. Nguyen predicted a gradual pickup in sales once rate cuts filter through, but said the high levels of inventory mean prices are unlikely to shift too much in the near term.
“The ongoing weakness in the housing market continues to reflect broader softness across the economic landscape,” she said.
“With a further 50bp cuts to the OCR expected from the RBNZ by the year-end, we expect increased activity in the housing market during the final quarter of 2025. However, any significant recovery in house prices is unlikely to occur before 2026.”
