Weak economy and job losses weigh on housing recovery
New Zealand home prices are expected to rise more slowly than previously forecast, with weak economic conditions and rising job losses limiting the boost from Reserve Bank (RBNZ) rate cuts, according to a Reuters poll of property analysts.
The Aug. 18-Sept. 11 survey projected prices would climb just 1.3% this year, down from 3.8% in June and well below February’s 5% forecast.
“We’ve already got eight months of the year, and house prices have basically gone nowhere. The market is remaining flat. So, it’s not leaving much of the year to get up to a 5% figure that I might have had previously,” said Kelvin Davidson (pictured left), chief property economist at Cotality.
RBNZ cuts yet confidence remains weak
To revive an economy that slipped into recession last year, RBNZ has slashed the cash rate by 250 basis points since mid-2024 to 3% at its August meeting and signalled more cuts by year-end.
But lower rates have not sparked the rebound seen in neighbouring Australia. Rising unemployment has kept sentiment subdued and squeezed budgets, particularly for first-time buyers in one of the OECD’s priciest housing markets.
Longer-term forecasts
Analysts polled by Reuters expect home prices to rise 5% in 2026 and 4.3% in 2027, compared to 6% and 5.1% previously. Westpac’s forecast is slightly stronger, tipping a 5.4% lift in 2026 as the labour market improves and migrant-driven demand strengthens.
While lower mortgage rates should support demand, the damage from the last downturn lingers. From a peak in late 2021, prices fell nearly 20% by late last year, only partly offsetting the 40% pandemic surge that left many first-time buyers priced out.
The national median house price sits at $767,250, while in Auckland it is nearly 30% higher at $975,000, according to REINZ.
Affordability hurdles remain
Mortgage rates have eased more than 20% from last year’s highs, but affordability remains a major barrier, with homes still costing around six times the average household income.
“In terms of affordability, I wouldn’t necessarily say a turnaround, obviously there’s that big drop through 2022 that occurred but when you look at house prices compared to incomes they are still higher than any time prior to 2020,” said Gareth Kiernan (pictured right), chief forecaster at Infometrics.
He added that while rate cuts make it “more affordable for first-time buyers to come into the market and service the mortgage...the sort of sheer volume of the debt you’re having to take on as a first-time buyer to get into the market is still putting off a lot of people,” Reuters reported.
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