Exactly a year ago the Reserve Bank started cutting the high interest rates put in place to fight inflation which peaked above 7% in 2022. 

Theory has it that lowering interest rates will produce a good lift in the housing market and for a while in the second half of 2024 we did see increasing prices through most of the country including a 4% rise in Auckland, 3.3% in Northland, and 2.2% in Bay of Plenty. 

But since those peaks which occurred in November, we have seen respective price changes of -2.5%, -3.0%, and -1.3%. Why have prices eased and sales flattened out even as interest rates have continued to decline? 

A number of forces are in play. First, courtesy of changes in rules around council provision of residentially zoned land and housing density there has been a lift in average levels of house construction in Zealand. This is great for first home buyers in particular but has caught out some developers who have been left with temporarily unsold stock as buyers have eased back.

Second, the unemployment rate has climbed from 3.2% to just over 5% and the monthly survey of real estate agents I run shows that 51% of agents feel buyers are worried about their jobs. The five year average for this measure is 26%. Job worries will naturally encourage people to delay their buying plans until the labour market improves.

Third, net migration flows have weakened from a record gain of 135,000 in the year to October 2023 to just 15,000 in the year to May 2025. The ten year average flow has been 50,000, therefore the pace of NZ population growth for the moment is well below average. 

The main impact of slowing population growth looks like it is being felt in the rental market. The monthly survey I run of landlords showed 15 months ago that a strong net 25% were finding it easy to secure good tenants. Now, a record net 41% say finding good tenants is difficult.

Fourth, ever since interest rates started surprising on the low side from the mid-1990s, investors have been shifting their focus towards residential property. The returns to date have been good. But going forward it is increasingly accepted (courtesy partly of analysis produced and written by economists like myself) that average capital gains for the coming three decades will be less than for the past three.

Coupled with structural hikes for rental costs such as insurance, council rates, and maintenance, many smaller investors whose families may traditionally never before have been property investors, are now cashing up. In particular, for many the motivation is helping to finance retirements now seen as being much more expensive than anticipated.

The situation this element and the others already mentioned produces is this. For the moment and even allowing for some extra small decline in mortgage interest rates, house prices are likely to be flat. This is providing a window of opportunity running well into 2026 for investors with good equity levels and perhaps some long-term experience of property investment to improve their portfolios.

There is the best range of properties for buyers to choose from in ten years now available around the country. First home buyers are taking advantage of this situation. But they don’t have experience of how to handle issues like maintenance catch-ups, correcting unconsented works, working with council, and arranging finances.

For skilled investors the environment through this year and perhaps into early-2027 is one of a good range of choice in which to create a portfolio which will benefit once the economy is stronger, employment confidence recovers, and the immediate surplus of townhouses in some locations gets soaked up. 

Tony Alexander is an independent economist and produces a free weekly publication with a housing focus called “Tony’s View”, available for signup at www.tonyalexander.nz