Economists revise outlook as housing market stays flat
New Zealand house prices have barely moved in 2025, defying forecasts of strong growth at the start of the year. Despite lower interest rates and rising activity, values have stayed mostly flat, leaving economists revising their projections.
Expectations vs reality
At the beginning of 2025, some banks predicted double-digit gains. ASB at one point thought prices could lift 10%. Westpac chief economist Kelly Eckhold (pictured left) admitted he had also expected stronger growth.
“We've had no meaningful price appreciation for three months now so we have to be a bit realistic about what we can expect,” Eckhold told RNZ.
“We are going into the spring selling season, so it'd be reasonable to think that there will be an increase in activity this side of Christmas. But yeah, hard to imagine that it’ll be very much more than what we've been seeing over most of this year.”
He said the impact of falling interest rates was less noticeable than anticipated, with economic conditions weaker than expected.
Eckhold noted that Westpac’s latest GDP forecasts showed the economy contracting by 0.4% in the June quarter, a weaker outcome than expected at the start of the year when growth was running at 0.8% in the first quarter and had been positive in late 2024. He said the bank had anticipated stronger momentum by mid-2025, which had not eventuated.
The Westpac economist now expects house prices to lift just 0.6% in 2025, before rising 5.4% next year.
A Reuters poll of 12 property analysts also points to only a 1.3% rise this year, far below the 5% forecast in February. Prices are expected to rise 5% in 2026 and 4.3% in 2027, suggesting a gradual recovery rather than a sharp rebound.
Looking to 2026
“We are still expecting that lower interest rates are still going to translate into a recovery in house prices,” Eckhold said. I mean, a 5% house price increase is a bit below average, really, I suppose, if we look at the last sort of like 10 or 15 years, and it is certainly quite a lot weaker than some of the really strong levels of growth that we had post GFC.”
He added: “I mean, we do generally expect that the economy will be operating closer to a trend next year as well. And it would be very unusual, I think, for house prices to be not rising in nominal terms if that was to occur.”
Forecast revisions
Infometrics chief forecaster Gareth Kiernan (pictured centre) said his latest outlook was for a 2% fall in 2026, but this could change.
“The official cash rate is now almost certain to go down to 2.5% and hold at that level throughout most of 2026, rather than our previous expected low of 3%,” Kiernan said. “The flow-on effects into mortgage rates and debt-servicing costs are likely to draw a few more buyers into the market than we had previously been forecasting.”
He said forecasts had been too high because “people had anticipated that falling mortgage rates would have more of a stimulatory effect on the housing market than has been the case.
“Instead, we’ve seen factors such as slowing net migration, difficult labour market conditions, sluggish consumer confidence, and poor housing affordability weigh on buyer numbers, leading to a lack of house price growth.”
Kiernan added that unlike previous cycles, net migration had not provided the usual support to housing demand in 2025.
“Conflicting forces” delay recovery
Cotality chief economist Kelvin Davidson (pictured right) said he had also expected house prices to rise this year.
“But the ‘conflicting forces’ have stayed in play longer than might have been thought, with the labour market in particular continuing to offset house price effects of lower mortgage rates,” Davidson said.
“However, we're now starting to see some shifts…. affordability a little more normal, listings on the market dropping, lower mortgage rates flowing through to existing borrowers as they roll over, and unemployment set to drop a bit early next year… the 5% increase has probably been delayed a year.”
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