The Reserve Bank of New Zealand has cut the official cash rate (OCR) by 2.5%, with another 0.5% worth of rate cuts expected by the end of 2026.
As shown below by Justin Fabo of Antipodean Macro, the fall in the OCR has reduced the cost of new mortgages, which should have increased housing demand and pushed up property prices.
However, housing values in New Zealand continue to decline. The Real Estate Institute of New Zealand (REINZ) announced another 0.5% decrease in home values in July, the largest monthly decline since April 2024.
As Fabo shows below, housing values have fallen sharply from their peak in all major markets:
Nationally, home prices have fallen by over 17% in the last 45 months and are currently only 3.4% higher than they were five years ago.
This has taken real housing prices in New Zealand back to pre-pandemic levels.
The latest Monetary Policy Statement (MPS) from the Reserve Bank of New Zealand forecasts that home prices will fall by 0.3% for the full 2025 calendar year, a sharp downgrade from previous MPS.
“The new forecast is contained in the data accompanying the RBNZ’s latest Monetary Policy Statement (MPS)”, wrote David Hargreaves at Interest.co.nz.
“In the previous MPS, issued in May the RBNZ had forecast a 3.5% rise for 2025, while earlier forecasts – at the end of last year were for just over 7%”.
“The RBNZ sees prices start to rise again next year, up 3.9% by the end of 2026 and 5.0% by the end of 2027”.
The major upside is that New Zealand’s housing market is becoming rapidly more affordable.
As shown by Justin Fabo below, New Zealand’s median house-price-to-income ratio has fallen to a decade low:
Mortgage repayment affordability has also improved to its best level in a decade:
Improving housing affordability is excellent news for young Kiwis.
