The Reserve Bank of New Zealand has slashed the official cash rate (OCR) by 2.5%, with another 0.5% of cuts expected by the end of 2026.
As Justin Fabo of Antipodean Macro illustrates below, the decline in the OCR has cut the cost of new mortgages, which should have raised housing demand and driven up home prices.
However, house prices in New Zealand continue to fall. The Real Estate Institute of New Zealand (REINZ) reported another 0.5% fall in home values in July, the largest monthly decline since April 2024.
As Fabo illustrates below, home values have declined sharply from their peak in all major cities.
Nationally, housing values have declined by more than 17% in the last 45 months, and they are now only 3.4% higher than they were five years earlier.
As a result, real home prices in New Zealand have fallen back to pre-pandemic levels.
Despite the sharp decline in interest rates, the Reserve Bank of New Zealand’s latest Monetary Policy Statement forecasts that home prices will decline by 0.3% over the full 2025 calendar year.
The main reason for home values falling despite rate cuts is that new listings have surged to an 11-year high:
Property website Realestate.co.nz received 8769 new listings in August, which was up 9.0% on August last year and was the most it has received in any month over the three months of winter, jumping from 7612 in June and 7737 in July.
It was also the most new listings Realestate.co.nz has received in the month of August since 2020.
That helped keep the total level of stock for sale high, with realestate.co.nz having 30,000 residential properties available for sale at the end of August, up 1.4% compared to August last year.
That puts stock levels on the site at their highest level for the time of year since 2014 and they have more than doubled since August 2021 when there were just 12,249 residential properties for sale on the website.
Basically, the supply of homes listed for sale is greater than demand, resulting in falling prices.
Younger Kiwis should celebrate, as New Zealand’s median house-price-to-income ratio has fallen to a decade low:
Mortgage repayment affordability is also tracking at its most favourable level in a decade:
Unlike Australia, New Zealand housing is becoming increasingly affordable.
