Watch JB's latest NZ property market update below, or keep scrolling to read the full article:
A slow and steady recovery on all fronts. That’s the big theme for this month’s market update.
With that said, let’s dive into what’s been happening with interest rates, inflation, the domestic economy, and the New Zealand housing market over the last little while—and the key factors informing where things might be headed next.
What’s the outlook for New Zealand’s economy?
After the high interest rates we’ve endured over the past few years, I’ve always said we'd be in for a slow and gradual recovery.
It was to be expected when you consider just how low interest rates got in the COVID era—and how much debt people took on as a result. When rates started to climb again, of course the hangover was going to be massive.
There’s no silver bullet when you’re trying to come back from something like that.
Now, with 2.25% of Official Cash Rate (OCR) cuts under our belts, there are some signs of life returning to the economy. Agriculture and exports are having a great run at the moment, and that’s helping to drive positivity in the provinces.
But there are still a lot of people out there struggling.
Interest rates haven’t come down enough—there hasn’t been enough relief—for households to get enthusiastic about the idea of opening their wallets and spending money again. We’re still in recovery mode.
That’s why it was disappointing to see the Reserve Bank delay that last 0.25% reduction on 9 July, holding the OCR steady at 3.25%. Given the current situation, getting us back to ‘neutral’ as quickly as possible should still be the goal.
The rest of us will eventually feel the benefit, but it’s proving to be a longer and harder process than many anticipated.
The broader issue of productivity
I believe the real answer to getting the economy back on track again isn’t just about lower interest rates.
We’ve got a much broader problem around low productivity and a lack of competition, which needs to be addressed if we want to be truly competitive.
One example (and one of my biggest pet hates) is the malinvestment that goes on within councils and central government.
Things like dropping $263,000 on four sets of steps at Milford Beach, millions of dollars on road cones and overkill traffic management, and (at last count) hundreds of comms staff in central government alone.
(My latest vent on a lack of common sense was directed at ACC and you can read it here.)
Because it’s not their money, there seems to be this mindset where spending it wisely—and pushing contractors for the best price to get good value—isn’t even a consideration.
It drives me nuts. We can’t afford to be bad spenders.
The other big one is a woeful lack of competition in certain parts of the economy. We’re a small country, so in many sectors (supermarkets or building supplies or banking) there just aren’t enough players to drive competitive behaviour.
Yes, lower interest rates are part of the equation. But really, they’re just a cheap sugar rush that gets people out borrowing and spending money again.
Relying on debt-fueled growth is a terrible economic strategy.
I’d argue that we need to work through a number of much deeper systemic issues in order for New Zealand Inc. to succeed.
Inflation’s on the up. Should we be concerned?
Stats NZ released our latest inflation numbers on 22 July. Annual inflation for the June 2025 quarter was 2.7%.
Despite being up on the March 2025 figure (2.5%), it was actually lower than expected.
Much of the increase has been attributed to rising council rates, food prices, and (interestingly) rents. I say interestingly because, in reality, we know rents are dropping.
What little inflation we are seeing is largely coming off the back of the fact that our agriculture sector is going full noise at the moment. The key thing is that it hasn’t flowed through to wages.
So, if you dive beneath the headline numbers, I can’t see any real cause for concern.
What’s in store on the OCR front?
John Key recently made headlines with his call for the Reserve Bank to slash the OCR to 2.25%.
I agree there’s scope for rates to fall further than the RBNZ’s current ‘neutral’ estimate of 3%, but that seems like a bridge too far.
Progress is slow, and the economy is still limping along (especially in Auckland and Wellington), but the outlook *is* improving.
The last thing we want is to risk overstimulating things—sending borrowing levels skyrocketing—and end up right back where we started, facing another massive economic hangover.
As I’ve said, ‘borrow and spend’ is not the way to lift our long-term wealth.
A more sensible approach would be to take it slow and steady, gradually lowering the OCR to (potentially) 2.5%.
We’ve got our next OCR announcement coming up on 20 August, where we’ll get not only the RBNZ’s latest rate verdict, but its updated forecast as well, laying out the path ahead over the next few months. So, time will tell what it has in store for us.
And what about the NZ housing market?
House prices have continued to fall over the last few months—largely thanks to the huge levels of oversupply, and vendors being forced to meet the market—but my sense is that they’re nearing the bottom.
As activity picks back up and that excess stock eventually clears out, that’s going to bring a bit more stability back into the equation and help to underpin any further falls.
But that doesn’t mean the housing market is about to take off again anytime soon.
There’s this assumption in New Zealand that you can rely on house prices increasing (on average) somewhere between 6% and 7% per year. And although that’s been more or less accurate for the last 30 years—when we had declining interest rates—it’s a different story moving forward.
As a rule, house prices should grow roughly in line with incomes, which historically have tracked upwards at an average of about 3%- 4% per year.
In other words, while this latest correction has been painful, it was very much needed, effectively bringing house prices back to where they should’ve been.
Opinions on the future of house prices are always mixed (and there are some eternal optimists out there), but looking ahead, I think we can expect long-term annual growth of around 3.5%.