Watch JB's latest NZ property market update below, or keep scrolling to read the full article:
In a nutshell:
- The RBNZ's latest OCR update on 27 May laid out a slow and steady path for interest rate increases—getting us back to a 'neutral' OCR of around 3.00% next year.
- While the outlook on inflation remains uncertain while the Middle East crisis is ongoing—and the RBNZ may revise its forecast depending on how the data plays out—we should (hopefully) be spared the sharp spike in rate increases that some economists had been predicting.
- New Zealand's economy is in stasis at the moment, with uncertainty (around both the global situation, and our upcoming election) being the biggest barrier to investment and growth.
- Once we're out the other side of the election, we should start to see a more meaningful recovery next year.
- The housing market looks set to be a mixed bag this year. Auckland and Wellington prices will likely to remain soft for a while yet thanks to a combination of new build oversupply and lack of population growth—but more broadly, prices are expected to remain relatively flat.
Between our latest Official Cash Rate announcement, ongoing global volatility, and the Government’s 2026 Budget announcement, there’s a lot to unpack this month.
Here’s the latest on what’s been happening with interest rates, the New Zealand housing market and economy over the last few weeks.
What’s happening with the OCR and interest rates?
Long story short: rates increases are on the way, but it probably won’t be the big spike some economists have been predicting.
As well as leaving the Official Cash Rate (OCR) at 2.25% on 27 May, the Reserve Bank shared its updated forecast, signalling two 0.25% increases to come in the next few months—one in either July or September, and one in December to round out the year.
It’s then got another small increase in the pipeline for March 2027, taking us back to its estimated “neutral” point of 3.00%— where it’s expected to stick for a while.
That slow, gentle transition back to neutral is bang-on in terms of what you’d expect with the economy starting to improve, but still a long way off firing on all cylinders.
It tells us that while the inflation picture is ugly now (forecast to peak at 4.3% in the September 2026 quarter) the assumption the RBNZ is working on is still that this is only temporary.
The outlook is still somewhat uncertain at this stage, largely hinging on how long it takes for the Middle East crisis to be resolved.
But once that happens—oil supplies gradually start to normalise, and the downstream inflationary impacts (i.e. on building and agri costs) start to work themselves out of the system—inflation is expected to track back to the mid-point of the RBNZ’s 1-3% target range by mid next year.
The RBNZ will be watching closely to see how inflation data plays out over the coming months and adjusting its approach accordingly (if needed).
Wholesale interest rates had overcooked the expected pace of increases—with some bank economists calling for eight OCR hikes over the next 18 months—and we’ve seen wholesale rates drop back slightly as a result.
What’s happening with the economy?
The economy’s kind of in stasis right now. We’re not going backwards, but things don’t feel like they’re getting better in a hurry either.
Unemployment’s running higher than we’d like, growth isn’t all that strong—and there’s still plenty of surplus capacity in the economy. But there’s nothing in the data that’s too alarming.
The one bright spot in everything is the agri sector—with the rural economy in good shape, thanks to ongoing strong meat and dairy prices. The benefit of that will start to flow through to our major centres eventually, but for now, consumer confidence and spending are still relatively subdued.
The big thing that’s holding our recovery back is a widespread sense of uncertainty about what the future holds.
At a global level, that stems from geopolitical tensions on multiple fronts — the big one being the US-Iran war. How long will it be before that gets resolved? How temporary will the inflationary impact be? And if it sticks around longer than hoped, what does that mean for New Zealand interest rates?
In the meantime, the added pressure in terms of the cost of living is something we could all do without.
Then, domestically, there’s the fact that we’re heading into an election in the second half of the year. You can’t underestimate what a huge drag it is on confidence and investment when the future direction of the country isn’t clear.
My sense is that, once we’re through the other side of the election (assuming we get a half-decent government out of it) we should start to see a far more meaningful recovery next year.
Part of why this recession has been so long and drawn out—especially in Auckland and Wellington—is that we’re weaning ourselves off two decades of debt-fuelled growth. Borrow, spend, push house prices up. After collectively gorging ourselves on debt during the low interest rates of Covid, we’re maxed out, so borrowing more simply isn’t an option.
Moving away from debt-fuelled growth is a positive thing long-term, but the adjustment is brutal.
What’s happening across New Zealand’s housing market?
It feels like the market has been kicking along the bottom for a while now, and the outlook for the rest of this year is a mixed bag.
In our major centres—Auckland and Wellington—nominal house prices are down between 20-25% from the 2022 peak. Once you factor in inflation (roughly 15% over that same period) it’s closer to 35%.
That’s huge, but remember, we did have a significant housing bubble to deflate.
Prices in Auckland and Wellington are likely to remain soft for a while yet, as both regions (although Wellington to a lesser extent) grapple with ongoing problems of oversupply, thanks to a combination of a high level of new builds coming to market and a lack of any meaningful population growth to support demand.
The picture’s slightly rosier in the regions, where the local economy is closely tied to agriculture—but overall house prices are expected to remain relatively flat this year. With inflation expected to track close to 4%, though, that does mean they’re still going backwards in real terms.
Conditions should gradually start to improve post-election, as we get further along the road to recovery, and job prospects improve, making New Zealand a more attractive option for immigration.
The structural reforms underway—in terms of changes to the Resource Management Act, freeing up land supply, easing access to imported build materials and faster consenting—will go a long way to preventing a return to unaffordable house price levels.
If it’s all feeling a bit doom and gloom, there are some silver linings:
1. It doesn’t look like rates are going to take off again in a big way.
The RBNZ’s proposed slow, gradual path back to ‘neutral’ is exactly what we’d expect to see with the economy now starting the slow road to recovery. Although the outlook remains a little uncertain—depending on how the US-Iran situation plays out—at this stage there’s no cause for panic.
2. There’s never been a better time to be a first home buyer.
Housing affordability is better than it’s been in decades and buyers are spoilt for choice, especially in Auckland and Wellington. For would-be buyers with secure income and employment, it’s a golden opportunity.
The structural housing reforms underway are laying the foundation for a housing market that should remain relatively stable and affordable over the next 20-30 years.
3. There is light at the end of the tunnel.
Although it feels like this one has, no recession lasts forever. Economies move in cycles, and this downturn will eventually pass—recovery is getting closer.
A final thought on the Government’s 2026 Budget
Of all the headlines to come out of the Government’s 2026 Budget announcement, the number that stood out to me was the Superannuation forecast.
We’ve got a big problem coming down the pipe at us, at pace, and at this stage we’ve still got no real idea how to solve it.
By 2030, the annual cost of NZ Super is expected to hit $31.2 billion (a staggeringly large number), up from $24.7 in the current financial year. That’s an increase of more than 25% in just three years. It’s unsustainable.
The problem is that Super is getting hit from two sides. Not only are baby boomers now entering retirement en-masse, but people are living (and drawing on Super) longer. Compound the growing cost of Super with the health costs of caring for an ageing population, and the picture gets even tougher.
So, what do we do about it?
Means testing feels like a good starting point. If you've got lots of assets and good income, should you honestly be getting universal Super? It’s not an easy sell from a political standpoint though—and given the size of what’s coming, it’s probably not enough on its own.
Raising the retirement age is the other option that’s talked about a lot. For some of us it’s viable; if you’ve worked in an office job for most of your life, and you’re aging relatively well. But what about people who have spent decades doing hard physical labour. And whose bodies are worn out?
Sadly, ageism in the workplace is very much alive and well, too, which makes it hard for workers to just keep going forever, even if they want to.
Then, layered on top of everything is this emerging question around AI and what it means for jobs and job security. If we can use it to add to productivity and economic growth, that should help to partially offset a shrinking workforce. But if all it does is drives higher unemployment, that just adds to the problem.
It’s a meaty issue, and one that probably deserves its own article. But suffice to say our near-term Super problem is real, it's big, and it's moving faster than I think most people appreciate.
About the author: John Bolton (JB), Squirrel Founder & Group Head of Property Finance