Falling mortgage rates have failed to revive demand, despite a sharp improvement in affordability
New Zealand’s housing market continued its downward trajectory in December, with real house prices now more than 30% below their late 2021 peak, according to an analysis by MacroBusiness.
The Real Estate Institute of New Zealand reported the house price index fell 0.6% in December, bringing the annual decline to 0.4%. In real, inflation-adjusted terms, values have retreated to levels last seen in 2019, nearly six years ago.
“New Zealand experienced one of the biggest house price booms in the world during the pandemic,” the report said.
Trade Me Property data showed the average asking price for residential properties fell by $82,500 in November and December to its lowest level in 12 months. The decline came as CPI inflation accelerated to 3.1% in 2025, further eroding real housing values.
Major bank ASB noted the market’s unexpected performance in 2025.
“The housing market in 2025 followed a trajectory that differed from what many economists had forecast at the start of the year,” ASB said.
“Despite 200bp of OCR cuts over 2025, which led to a substantial reduction in mortgage interest rates, the housing market has been slow to respond and has shown no significant improvement,” the bank said.
Demand cools despite improved affordability
ASB identified supply and demand imbalances as the primary driver.
“The ongoing imbalance between weak demand and strong supply remains the key factor causing house prices to trend sideways,” the bank said.
Mortgage rates have fallen back to pre-pandemic levels, according to data from Antipodean Macro. Combined with lower prices, this has significantly improved purchase affordability for New Zealanders.
The collapse in immigration into New Zealand has also affected rental markets, with rental inflation plunging. This contrasts with Australia, where historically high net overseas migration continues to drive rising home prices and rents.
ASB said house sales turnover ended 2025 marginally higher than in 2024, while prices remained slightly lower year on year.
Property research firm Cotality reported the median house price is now $808,430, a drop of 17.6% from the 2022 peak.
“Property in provincial towns and cities...has been more resilient. I wouldn’t say it’s booming, but it definitely hasn’t fallen as far as other parts of the country and it perhaps showed a bit of renewed growth,” Cotality chief property economist Kelvin Davidson noted.
Bank of New Zealand revised its 2026 forecast down to 2.1% growth from 4.4%, according to Bloomberg.
The MacroBusiness analysis, written by chief economist Leith van Onselen, highlighted improving affordability for both buyers and tenants.
New Zealand housing has become increasingly affordable to buy or rent, the report noted, while Australia remains historically unaffordable.
