Watch JB's latest NZ property market update below, or keep scrolling to read the full article:
I don’t think I’m hallucinating when I say that there seems to be some genuine green shoots starting to emerge out there.
Finally, it feels like we may have turned a corner.
Here’s the latest on what’s been happening with the OCR and interest rates, the economy and NZ housing market over the last few weeks.
What’s happening with the economy?
The economic hole New Zealand’s been in over the last couple of years has been real, and it’s been deep.
And despite the government’s best efforts to convince us otherwise (let’s call it hopeful delusion brought on by the prospect of an election next year) you can’t just ‘positive think’ your way out of something like that.
At the end of the day, all the optimism in the world won’t change the fact that you’re still in a bloody hole.
So, it was great to see the Reserve Bank finally come out earlier this month with a bit more urgency in its efforts to get the economy back on track—dropping the Official Cash Rate (OCR) to 2.50% and tipping us into a stimulatory rate environment.
It should’ve happened sooner if you ask me, but hey, at least we got there in the end.
Depending on how the data plays out over the next few weeks, we may get one further OCR cut before the end of the year, down to 2.25%.
I don’t know if we need it to be honest—where we’ve landed now feels about right—but the RBNZ might just want to give things a little extra nudge to make sure the job’s done.
Wherever we land in November, I suspect that’ll be the end of rate cuts for this cycle.
Whatever happens, the foundations are there for things to be feeling a lot more positive by the time we head off on summer holidays.
Lower interest rates will help to build on the momentum we’re already seeing across some parts of the economy.
Agriculture’s the big one, obviously, which I’ve talked about a fair bit in previous updates.
Meat and dairy farmers are having an absolute bonanza at the moment, and that looks set to continue with the weak NZD creating tailwinds in the export market.
The groundwork’s also being laid for a recovery in the construction sector.
Bank lenders—who stepped back in a big way during the recent downturn—are starting to be a little more risk-on, prepared to fund projects with no presales, which will help drive levels of build activity. It’s not going to take off in a big way any time soon, but there’s a more warmth there than we’ve seen in a long time.
As low rates continue to flow through to borrowers, that can only be good news for our hospitality and services sectors. With a bit more money in their back pockets, people will start to feel comfortable going out for a meal or splashing out on a box of craft beer for the Christmas grocery order.
If 2025 has been about battling through the depths of recession, my bet is that 2026 is shaping up to be a year of solid recovery.
What's the outlook on interest rates?
With the OCR now at 2.50%—half a percent below the RBNZ’s estimated ‘neutral’ point of 3.00%—we’re very much in a stimulatory rate environment.
Now, stimulatory interest rates have one job, and one job only: they’re a temporary measure you roll out in order to get a little more life back in the economy.
That means, once we start to see solid signs of a recovery next year (i.e. some of that excess capacity in the economy starts to get absorbed) borrowers need to be prepared for interest rates to track upwards again at some point.
When it happens: don’t panic.
We’re not in for a repeat of what happened post-COVID, when rates shot up so far and so fast it caught everyone off-guard. The economic cycle we’re in this time round is much more normal, and so the approach is going to be a lot more measured.
My expectation is that we’ll get one or two OCR increases sometime next year (timings TBC), to take us back to 3.00%—and then there’s nothing to say we shouldn’t just coast along there for a few years.
At that level, the one-year mortgage rate should settle at around 5.00%.
If you’re really sensitive to rates, it means taking the chance to lock in longer-term now, while interest rates are sitting a bit lower, is probably a good idea.
Otherwise, splitting your loan across a mix of shorter and longer-terms—and just having a bet both ways—is a good way to go.
How are things looking in the housing market?
It’s still very much a buyers’ market out there—first home buyers in particular have their pick of great properties at the moment.
But we are gradually starting to see a bit of balance return to the supply / demand equation, as the high stock levels that have defined the market for a lot of this year start to flow through.
People who needed to sell have sold, and less building activity over the last 12-18 months means we’ve got fewer properties coming up for sale.
Once the economy is back on the track, and we’ve got more job creation happening, immigration will pick up as well, which will help breathe a bit more life into the housing market, too.
But don’t be fooled—that doesn’t mean house prices are going to take off again any time soon.
Because, for one thing, we just can’t afford it.
The level to which Kiwi borrowers all gorged on debt during COVID had us dangerously close to our very own Mr. Creosote moment for a while there. As soon as interest rates started to rise, we were just one wafer thin after-dinner mint away from an explosion.
It’s why our recession has been so nasty, worse than almost anywhere else in the world—and even though we’re coming out the other side now, that debt doesn’t just magically go away.
We don’t have the borrowing power to support drastically higher house prices.
Add to that the Government’s big push to keep the cost of housing down (including policies to free up land supply and make construction both cheaper and more efficient) and we’re just not going to get the same sort of house price growth moving forward that we’ve come to rely on in recent decades.
That’s not to say that property values won’t still track upwards. They will, but just much more in line with income growth.
Next year could bring a bit more of a recovery across parts of the market, simply because of how much house prices fell during the recession (especially in Auckland and Wellington).
But taking a long-term view, I think it’s reasonable to expect house prices to grow at an average rate of around 4% per year, or roughly 50% every decade.