Housing market remains subdued despite aggressive rate cuts
Eckhold noted that house prices rose rapidly in the decade following the Global Financial Crisis, with real prices climbing at an annual rate of 6% – one of the fastest among developed economies.
By comparison, Canadian house prices grew at just under 6% annually in real terms, while Australian prices rose at a slower 1.3%.
“Steadily lower interest rates and unemployment combined with strong migrant-driven population growth to generate the uptrend in house prices,” Eckhold said.
COVID policies supercharged housing market
Westpac’s analysis shows accommodative monetary policy both before and during COVID helped drive the surge. The official cash rate (OCR) was cut by 75 basis points to 1% before the pandemic, then reduced further to 0.25% during COVID.
The Reserve Bank also introduced quantitative easing, removed macroprudential lending restrictions and issued forward guidance signalling an extended period of low rates.
“These accommodative policy settings supercharged a housing market that already had significant momentum,” Eckhold said. “Investors saw value in housing at such low interest rates and behaved as if interest rates would be very low for a very long time.”
But as inflation and interest rates later rose, much of the increase in real house prices during 2019–21 was unwound.
House prices flat through 2025
Since 2023, NZ house prices have been stable in nominal terms and declining in real terms. So far in 2025, prices are flat nationwide, with falls in Auckland and Wellington offset by gains in Canterbury and Otago.
Small increases earlier in the year have given way to modest declines in recent months, particularly in Auckland. While sales volumes have improved and time-to-sell measures have stabilised, high inventory levels mean “there has been little need for buyers to bid prices higher,” Westpac said.
Cotality’s latest NZ Property Pulse shows supply is now outpacing demand in Auckland and Wellington after years of shortages, helping keep prices in check. Chief economist Kelvin Davidson said this shift is “more about trying to fix up shortages rather than emerging into over-supply,” with construction and lower mortgage rates supporting balance.
Credit demand, however, is rising. Housing-related lending grew 5.1% in the year to July, led by investors and existing owner-occupiers. Lower test rates are enabling more households to enter the housing market, while higher loan-to-value lending is increasing.
Forecasts: 0.6% lift in 2025, stronger in 2026
Eckhold said Westpac’s forecast of a 3.6% rise in prices this year looks “optimistic given the recent momentum.” Instead, the bank expects only a 0.6% gain in 2025, supported by small increases in the final quarter.
Looking ahead, the bank forecasts house prices will rise by around 5.4% in 2026.
“Demand for both owner-occupier and investor housing should strengthen as the broadening economic recovery – and crucially an upturn in the labour market – encourages the formation of new households, including migrant households,” Eckhold said.
Risks to outlook
Westpac highlighted two-sided risks for 2026. Low interest rates and favourable tax settings mean valuations are attractive for investors, and credit demand from this segment has already picked up.
But oversupply in the rental market and slower population growth could limit house price gains, particularly if new housing construction remains strong.
“Our forecast implies slightly rising real house prices in 2026 (assuming the RBNZ can keep inflation close to the 1-3% target range),” Eckhold said.
Read the full Westpac insights for more information.
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