Watch David's latest NZ property market update below, or keep scrolling to read the full article:
There’s a lot to unpack this month—so, without further ado, here’s the latest on interest rates, the housing market, New Zealand economy, and the global backdrop.
What’s changed since our last market update?
The big thing, of course, has been the outbreak of the US-Israel war on Iran—and the closure of the Strait of Hormuz—which has put significant pressure on global oil supplies, sent the price of petrol skyrocketing, and sparked major concerns around global inflation.
What would be a challenging prospect for any economy feels doubly so for New Zealand.
Even though our economic recovery is underway, things remain fragile. So, a fresh inflation shock—and the prospect of interest rates rising again just as we were starting to build some momentum—is far from ideal.
So, on that note, what is the outlook on the OCR?
Up until the Reserve Bank’s latest OCR decision on 8 April, there were two distinct views on how things might play out.
In one camp we had the wholesale market, which (amid mounting inflation concerns) had already moved to price-in OCR hikes starting from as early as mid-year.
In the other, many economists were banking on the RBNZ taking more of a “wait and see” approach i.e. that it would look through the (hopefully) short-term inflationary impact of the war and focus on keeping rates low to help us on the road to recovery.
But the consensus now, following what’s been dubbed a “hawkish hold” from the RBNZ earlier this month, is that rate hikes are (very likely) coming sooner rather than later
Despite keeping the OCR at 2.25%—and making it clear a hike wasn’t part of the consideration set this time round—the RBNZ has said it stands poised and ready to act if required.
It also took the unusual step (for an interim update) of sharing its updated inflation forecast, which now has inflation hitting 4.2% in the June 2026 quarter i.e. well above its target 1-3% range.
What happens from here will be heavily dependent on how quickly the situation in the Middle East gets resolved and inflationary pressures begin to ease. It’s worth noting, though, that even if the Strait of Hormuz reopened tomorrow, it would still take some time for supply levels (and prices) to normalise.
At this stage the market is largely aligned in expecting three, possibly up to five, 0.25% hikes to be delivered over the next year, likely starting in either July or September.
What does that mean for interest rates?
Wholesale interest rates had already moved—pricing in several OCR increases over the coming months—so we’ve seen very little change there.
Wholesale interest rates at the very short end of the spectrum (i.e. six to 12 months) haven’t moved much in the wake of the RBNZ’s decision, but beyond that, they’ve stuck at those elevated levels.
Until this week, lenders had been relatively slow to respond to the shift in wholesale rates (with the squeeze on lending margins largely offset by expanding margins on the deposit side) but that’s starting to change.
At the time of writing, at least one major bank has announced increases of between 0.10% and 0.20% across its one- to three-year fixed term rates, and there will be more to come.
Looking ahead to the next year or two, it’s reasonable to expect mortgage rates to sit somewhere around the 4.75% - 5.50% mark—rather than the 4.50% - 5.00% range we were seeing just a few months ago.
What do borrowers need to be thinking about in this environment?
The big question for borrowers right now really comes down to: what matters more—certainty or cost?
Shorter-term rates are sitting considerably lower than some of those longer terms right now, which makes them a tempting option. But if your financial situation means you’re particularly sensitive to rate increases, then fixing for longer (at a higher cost) may make more sense.
Right now, we’re seeing a lot of borrowers hedge their bets by splitting their loans across a mix of shorter and longer terms, which just helps to spread their risk.
What’s in store for the housing market and house prices?
For a brief moment there, 2026 looked like it was shaping up to be a relatively solid year for the housing market (at least in recent terms), but any signs of recovery have evaporated in the recent weeks.
Anecdotal evidence from real estate agents and developers suggests that buyers have stepped back from the market in a big way—driven by uncertainty around the global backdrop, the New Zealand economy, and the outlook on inflation and interest rates.
It means the conditions just aren’t there to support any sort of recovery in house prices.
Best-case scenario, the housing market will remain largely flat this year. More probably, though, prices will have a bit further to fall.
By just how much remains to be seen, but—unless we get some sort of major economic shock—it probably won’t be significant, if only because of how much they’ve come down already.
The good news for buyers, and first-home buyers in particular, is that it’s a great time to be in market. There’s less competition, more choice, and interest rates (while up slightly) are still well below where they were a couple of years ago.
For developers, and existing homeowners looking to sell, the medium-term outlook is arguably more challenging.
While it all feels a bit bleak out there, it’s important to remember that—like any major crisis—this will pass eventually
Inflation will ease in time, and conditions will return to something more like “normal”.
It’s worth noting, too, that (while it might not feel like it) we’re in a better position now than we were two or three years ago, when interest rates were significantly higher and placing much greater pressure on households and businesses alike.
About the author: David Cunningham, Chief Squirrel
With more than three decades of senior experience across New Zealand’s financial services sector, David knows the world of banking and finance inside out. He's not afraid to call it like he sees it (all part of our fight for a fairer financial system) which is why he's a regular media commentator on matters relating to the economy, housing market, mortgages, saving and investing, and interest rates.