Stagnant prices leave buyers cautious despite cheaper mortgage rates
BNZ chief economist Mike Jones (pictured) says New Zealand’s housing market is heading for another subdued year, with conditions in 2025 and the outlook for 2026 pointing to ongoing stagnation.
“The NZ housing market spent most of this year in a broad state of balance,” Jones said in BNZ’s final Property Pulse for 2025.
Ample supply absorbed rising demand, leaving national house prices essentially unmoved. As a result, BNZ expects 2025 to finish up just 0.5% year-on-year.
The bank is forecasting only a modest 4% lift in 2026, supported by a defrosting economy, slightly stronger population growth and low mortgage rates. But a healthy supply pipeline “adds a whiff of downside risk” and could again mute price gains.
Supply continues to dominate despite lower mortgage rates
Lower interest rates encouraged more demand through 2025, but supply kept pace. Listings growth has stayed just ahead of sales, pushing unsold inventory to fresh 10-year highs in October.
“National house prices were again flat in October,” Jones said. They remain “flat on levels of almost three years ago”, and in real terms are back to 2019 levels.
Regional splits widen as some markets stall
Auckland, Wellington, and the Top of the South remain clear underperformers, while Southland (up 7.5% year on year), Canterbury, and the Bay of Plenty continue to hold up more strongly.
Jones said earlier BNZ research had already flagged townhouse-heavy markets and regions with abundant supply as likely laggards.
“And so it has largely proved,” he said.
CGT chatter may dampen investor demand
The Labour Party’s pledge to campaign on a capital gains tax in 2026 could restrain investor activity next year. Jones notes earlier CGT debates in 2014 and 2018–19 showed signs of softer investor engagement, even if the exact impacts are hard to isolate.
Rates outlook: OCR cut expected, but 2026 path in focus
BNZ expects a 25-basis-point OCR cut this week, which Jones says will likely mark 2.25% as the cycle low.
“That leaves only a little further for mortgage rates to fall,” he said.
Economists broadly agree. ASB expects a 25bp cut and anticipates the RBNZ will keep the door open for further easing in 2026. Kiwibank shares the view, saying the economy still needs support and noting a move toward 2% remains possible under incoming Governor Anna Breman.
Floating rates are expected to settle slightly below 6%, while fixed rates have already fallen 25–40bps since August. Jones said the downtrend is “on its last legs” given market pricing already factors in more easing.
Borrowers shift back to short terms
After briefly considering longer fixes, borrowers have once again leaned toward shorter terms.
Jones said the shift was “prescient” given RBNZ’s dovish turn and October’s 50bp cut. BNZ expects this preference to persist through late-year data.
Adviser takeaway: Planning matters more than timing
Jones emphasises that fixing decisions must prioritise borrower needs rather than attempts to pick the cycle bottom. But he outlines the trade-off borrowers face:
Option A: Term out now
- Locks in certainty, even if not at absolute lows
- Hedges against rates rising again in 2026
Option B: Stay short a little longer
- Captures any remaining downward moves
- Offers flexibility if the recovery falters and the RBNZ cuts deeper
BNZ’s breakeven analysis shows the advantage between short and medium terms is borderline, reinforcing the case for spreading risk across one-, two- and three-year fixes.
Jones says there is now “more merit in looking to extend the term of mortgage borrowings”, with a mixed-term strategy often the most prudent way to navigate uncertainty.
Read the full BNZ analysis here.
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