In a nutshell:
- New Zealand has just endured one of its biggest housing market downturns on record—with dollar prices down 17%-18% on average. Throw in the impact of high inflation, and the real fall has been much greater.
- While most homeowners have avoided ending up in negative equity—because prices rose so quickly, and so few transacted at the peak—it's wiped about $570 billion from our collective 'paper' wealth, leaving us all feeling significantly poorer.
- We're likely at the bottom in nominal terms, but real falls have a little further to go.
- A meaninful recovery will depend on stronger economic conditions, lower stock levels and improving employment—not just lower mortgage rates.
- The next housing cycle is unlikely to look like the last. Changes in lending rules and attitudes towards property are two forces which should contribute to much steadier growth moving forward.
Being a homeowner in New Zealand has been a weird experience over the last few years.
First, house prices skyrocketed by almost 45% from mid-2020 to November 2021—only to immediately turn around and start a long, gruelling backwards slide which (in some regions) still hasn’t quite reached the bottom.
All up, we’ve just endured one of the biggest—and soon to be longest—housing corrections in modern New Zealand history.
So, how did we get here? How does this downturn compare to others in the past? And what does history tell us about where prices should go from here?
First up, nominal vs. real house price falls—what’s the difference, and why does it matter?
The nominal number is the dollar figure on the price tag—or the difference between the sale price on a house in 2021 vs. on the same house today.
But inflation means money actually loses value over time.
With around 21% worth of inflation between late 2021 and early 2026, even if house prices had stayed flat, they would actually still have been going backwards in value.
The real number factors the impact of inflation into the equation—representing what your house is worth today in terms of actual buying power (i.e. how much other stuff it could buy).
Nominal vs. real numbers can tell very different stories.
When you get significant dollar price falls, plus high inflation, the real hit to your wealth is bigger than what the nominal number might suggest. The real figure is the truer measure of what's happened to your wealth.
How does this downturn compare to ones we’ve had in the past?
The last time we went through anything like this was the early 90s—as part of the fallout from the 1987 share market crash. The impact of that played out very differently across different countries:
In the UK, they had a textbook housing market crash.
House prices peaked in 1989 after a wild credit-fuelled boom—then dropped about 20% in nominal terms over the next few years. Throw in the impact of inflation (which was running rampant), and the real fall was almost double that, down 37% from peak to trough.
It took nine years (until 1998) for average UK house prices to get back to their 1989 level. In real terms, it was even longer. Many who bought at the top spent the better part of a decade owing more on their mortgage than the house was worth.
Australia (with the unfortunate exception of Melbourne) barely felt a thing.
Looking at national averages, Australian house prices stayed stubborn throughout the early 90s—and actually rose in parts of the market. But national averages can hide enormous regional differences.
Melbourne drew the short straw, with a string of banking failures and job losses dragging prices down about 22% in real terms. It took until 1996 for house prices there to recover.
In New Zealand, house prices stalled—and our attitude towards investing completely changed.
The 1987 crash hammered the NZ share market—dropping 60%—and the recession that followed flattened house price growth for three to four years.
Most significantly, it completely changed the Kiwi psyche around what makes a ‘good’ investment. After being badly burnt by shares, people swore them off for good, pouring money into the ‘safe and solid’ option of property instead.
And so started our national obsession with property as a means of building wealth, which held strong for four decades, until very recently.
But it’s our 1970s housing market crash that’s the real cautionary tale
House prices shot up by around 60% between 1971 and 1974—fuelled by high inflation, immigration, and construction sector shortages. Then the bubble burst in 1975, and prices fell around 40% over the next five years.
From there, it took fifteen years—until 1995—for prices to recover in nominal terms. Twenty years to break even in buying-power.
All up, there are three key ingredients every house market crash has in common:
- A boom—fuelled by cheap, easy borrowing.
- A shock—interest rates jump, or a recession hits, or both.
- A long correction—where cutting interest rates doesn't fix the problem straight away.
And it’s that third point that’s the really critical one.
We tend to think that once the Reserve Bank cuts rates, prices should just…bounce right back—but history says while rate cuts help, they’re not a silver bullet.
The economic pain—job losses, low consumer confidence, high listing numbers— has to work through the system before any meaningful recovery is possible.
So how bad has this recent housing market downturn actually been?
New Zealand house prices peaked in late 2021. Since then:
- In nominal terms—they’re down roughly 17–18% on average across the country, and around 21% in Auckland. Wellington’s been hardest hit—thanks to a combination of housing oversupply and public-sector job cuts—down around 25%.
- In real terms—throw in roughly 19–20% worth of inflation over the same period, and prices are down around 31% on average, roughly 33–34% in Auckland, and 37–38% in Wellington.
A 21% fall in nominal prices is big by any standard. But a real fall of more than 30% means the hit to our collective wealth has been even greater.
In buying power terms, the downturn in both Auckland and Wellington has actually been deeper than what the UK endured during that infamous early-90s crash.
There’s no doubt this downturn’s been steep—but, for many, it hasn’t felt catastrophic. Why is that?
It all comes down to the shape of the boom that came before.
Because house prices shot up over such a short timeframe (18 months, give or take) only a very small proportion of people actually bought at or near the peak.
For anyone who’d owned their home for at least a few years before the boom (the vast majority) even a 21% fall in prices wasn’t enough to tip them into negative equity. A relatively small number have been left owing more than what their house is worth.
By comparison, the UK’s 90s housing market crash left hundreds of thousands trapped in negative equity—which is when a downturn tips into genuine crisis territory.
There are a few factors that have helped prevent a full-blown disaster:
- Unemployment has risen, but not to a level where people have been forced to sell.
- This downturn has been unusually drawn out—already four and half years in, and on track to be the longest in modern history.
- And it hasn't hit all parts of the market equally:
- Quality, standalone homes (with decent land, in good locations) have held their value pretty well.
- At the upper end of the market—where buyers are less concerned about things like bank funding costs and job security—some homes have actually gone up in price.
- It's townhouses and apartments that have felt the most pain, where a flood of new development coming to market means there are now more properties for sale than there are buyers.
Why do we all feel so much poorer?
This drop in house prices has wiped a hefty chunk of value off the housing market. I crunched the numbers back in March—and it’s not pretty.
To get a realistic picture, the starting point was to only look at homes that already existed at the 2021 peak—ignoring new builds completed since then.
That existing stock was worth around $1.72 trillion. To hold its real value, prices needed to keep pace with inflation over the next four years. Instead, they fell. Add inflation into the picture, and the real loss comes to roughly $630 billion.
Partially offsetting that is the fact inflation quietly erodes the real burden of debt, just as it erodes the value of a house. With $335 billion of mortgages at the peak, borrowers got roughly $65 billion of relief.
Net that off, and by my best estimate, we’ve collectively taken a hit of around $570 billion.
Now, none of that was ever real money in the way cash in the bank is real. Very few people sold up and cashed in at the peak, so for most homeowners it was just paper wealth that quietly evaporated. But its loss still has an impact.
Through the boom, because people felt rich on paper, they borrowed and spent freely—mortgage debt grew from $65 billion in 2000 to $335 billion by 2021, more than 8% a year for two decades. Then it ran in reverse.
And when it did, even people who never sold, or intended to, looked at their evaporating equity and snapped their wallets shut.
The feeling of being poorer is completely real, and it changes how people behave. That's the reverse wealth effect, and it's the single biggest reason the wider economy has been stuck in first gear.
Are we at the bottom yet?
My estimate: yes in nominal terms, not quite in real terms.
Dollar prices have been essentially flat since 2025. Interest rates significantly down from have removed the single biggest force dragging prices lower.
In real terms, though, prices are still tracking down—simply because once you factor inflation into things, even flat dollar prices lose buying power each year.
The phase we’re in right now is normal. It’s exactly what happened in the UK in the mid-90s: the dollar low came first, the real low a bit later.
Two things are stopping house price growth right now: high stock numbers (especially new build townhouses), and a soft job market. Until those clear, expect drift rather than lift.
What might NZ's housing market recovery look like?
Bear in mind this is just a forecast—not a given by any means.
Our best read is that the rest of this year will be pretty lacklustre. The economy is still finding its feet, and the uncertainty of an election year leaves people (businesses and households alike) cautious about big investments.
The Middle East conflict has been the other spanner in the works, wiping earlier expectations of a modest increase in nominal house prices this year. When things kicked off in February—sending oil prices and inflation risk climbing—wholesale interest rates jumped in response, and at least one major bank flipped its 2026 forecast from a small rise to a small fall.
The practical effect of the oil crisis is that the rate cuts the market was counting on have been delayed, pushing back the timeline on any meaningful recovery from this year to next.
On that note, 2027 is where the recovery should pick up pace.
By then several things should have lined up:
- House prices will be looking attractive after years of falls
- Household balance sheets will be a bit healthier in real terms
- The economy showing decent signs of growth (the agricultural sector is already there)
- Immigration starting to come back, supporting demand.
- And the return of some job growth.
It’s that combination which, in the past, has got prices moving again. Things only really take off once the economy’s back on its feet.
History suggests it takes about a decade for a full recovery, meaning it’ll be 2031 (or thereabouts) before we’re back at the 2021 dollar peak—which translates to annual price growth of around 4% nationally, and around 5% in Auckland (where prices fell further). A slow and steady grind.
Given the outlook for 2026, most of that growth is expected in 2027 and beyond.
So, that’s dollar prices—but what about real prices?
Even once prices are back at their 2021 peak in dollar terms, they'll still be down roughly 20% in real (i.e. buying power) terms.
And there’s a genuine question in my mind as to whether we’ll ever get that back—or whether what’s happened has sparked too much of a shift in the way New Zealanders think about property.
Our collective obsession with property began after a whole generation of Kiwi were burnt by shares in 1987 and never trusted them again.
But now, we’ve got a new generation coming through who have grown up with KiwiSaver, are more comfortable investing in shares, and no longer view property as the key to building wealth.
DTI lending rules—capping how much people can borrow relative to their income—put a natural ceiling on how far prices can climb.
That means the leveraged, investor-led booms of the past will be harder to repeat.
Combined, those forces mean the next cycle could look quite different. The recovery will be real but more measured, led more by ordinary owner-occupiers and first-home buyers than by investors piling in—which will affect which homes hold and grow their value.
Good homes on good land in good locations will likely keep doing what they've always done. The rest will probably have to work a bit harder.
What does it all mean for current and aspiring homeowners?
If you own your home and plan to stay in it, nothing about this should keep you up at night. You live in your house; you don't trade it. Prices bumping along the bottom and then grinding higher is a perfectly fine backdrop for getting on with life.
If you're thinking about buying, the next year or so should be a genuine buyer's market—plenty of choice, vendors who need to be realistic, and interest rates well off their highs.
History suggests people who jump in during the quiet, nervous part of the cycle tend to do better than those who wait for the obvious all-clear, because by then the best of the value has usually gone.
Whatever you're doing, focus on the quality of what you buy more than timing. In a two-speed market, that's the thing that matters most.
About the author: John Bolton (JB), Squirrel Founder & Group Head of Property Finance