After two years of sluggishness, are we finally seeing a turnaround?
The economy appears to be finding its footing after months of sluggish conditions, with businesses reporting they're no longer sliding backwards. While the recovery is still fragile, smaller green shoots are emerging across the country – though the housing market tells a tale of two very different New Zealands.
Westpac's latest economic commentary notes that the economy is still "soggy" but stabilising. Businesses are seeing a modest lift in demand, albeit from a low base.
On the other end of this tentative recovery, inflation has risen back to 3% – driven largely by food prices and council rates rather than underlying economic heat. Economists largely believe this is a blip, but the Reserve Bank will face a delicate balancing act with markets expecting at least one more rate cut this year, potentially bringing the Official Cash Rate down to 2.25% in November.
A housing market split in two
Perhaps nowhere is New Zealand's uneven recovery more apparent than in the property market. While national house prices have moved sideways for two years, regional differences are substantial. Rural and dairy-intensive regions are experiencing genuine growth – Otago leads with prices up nearly 6% annually, while Canterbury and Southland have posted solid gains around 2-3%.
Urban centers tell a different story entirely. Wellington property values have fallen 3% over the past year, while Auckland has slipped 1%.
Wellington in particular is facing a challenging environment. It is grappling with ongoing pressure on household finances, low consumer confidence, and weakness in the services sector – a triple threat that's keeping its property market in retreat. Cotality NZ’s September data showed Wellington prices dipping by 0.4%.
However, one group has emerged as the clear winner - first-home buyers. They set a record in September, accounting for 28.2% of all sales nationally. Their dominance is particularly notable in Wellington, where despite falling prices, they comprised nearly 40% of purchases in Porirua and over 24% in Wellington City.
Cotality NZ head of research Nick Goodall (pictured above) also noted that mortgaged investors are returning to the market. Their market share is now pushing back towards the long-term average of 25%.
“This resurgence has been driven by smaller ‘mum and dad’ investors, encouraged by recent regulatory changes like the reinstatement of mortgage interest deductibility and lower mortgage rates, which reduce the size of monthly mortgage top-ups,” Goodall said.
“So far this year, the median price paid by a mortgaged investor is $759,000, down from $770,000 in 2024, suggesting some are finding savvy deals in the current market.”
Goodall noted that these investors are particularly prevalent in Hamilton and Christchurch, where they made up 29% and 27% of purchases respectively.
“The group largely holding back and therefore making way for first-home buyers and mum and dad investors are existing owner-occupiers or ‘movers’, who remain quieter than usual,” he said.
The road ahead
The Reserve Bank's recent 50-basis point OCR cut was what Goodall calls a "least regrets” option, designed to give the economy a jump-start. Markets are anticipating at least one more cut before year's end, potentially bringing the OCR to 2.25%.
December will also see looser LVR restrictions, though Goodall says they’ll likely be of limited impact as lenders weren’t really approaching the limits anyway.
“With the spring selling season now underway, the total number of properties listed for sale is 12% below the same time last year, but remains above the five-year average, meaning the market is largely in favour of buyers,” Goodall said.
“Lower mortgage rates are expected to support the market, with about 44% of existing home loans available to be repriced in the next six months.”
Overall, green shoots are emerging, but nobody is expecting a boom just yet.
