The New Zealand economy has fluctuated considerably in recent years following the unprecedented effect of the corona virus pandemic on local and global economies in 2020 and 2021. NZ adjusted to living with the continued impacts of COVID-19 and growing headwinds from the sharp increase in the cost of living and rising interest rates with OCR increases through 2022 from 3.0% to 5.5% in May 2023 at which it remained through to August 2024 with the first reduction down to 5.25%, further reductions in October and November, then in February, April, May and August down to 3.0%, plus down to 2.5% 9th October and to 2.25% late November until adjustment in July 2026 back to 2.5%.
The New Zealand residential property market in 2025 was characterised by growing confidence and a return to stability and participation. Nationally, house prices remained broadly stable, and underlying market activity strengthened, reflecting improved confidence as interest rates eased and OCR reductions flowed through to buyer behaviour.
In the latter part of 2025, sales counts, prices, and days to sell remained broadly steady through October, November, and December. This consistency is significant, as stable conditions tend to reduce uncertainty and support confidence among both buyers and sellers. Buyers continued to prioritise affordability, value, and location, particularly given elevated borrowing costs compared to historical levels. For sellers, stable late-year conditions reduced the incentive to delay further, as expectations became better aligned with market realities.
House prices are now more than one quarter below late 2021 peaks in inflation-adjusted terms. This may change, of course, as the economy remains slow and labour demand follows suit. The fact that bank lending became a lot more prudent following the GFC, suggests households have weathered the downturn better than otherwise expected. The wobbly global economy could always throw a curve ball; housing policy changes and/or a significant net migration surprise could alter the landscape at the margin too.
‘Conflicting forces’ including lower mortgage rates, job insecurity and elevated levels of listings available on the market may remain key themes for the property market in 2026 as well, with the effects of lower mortgage rates dampened to some extent by a still-sluggish economy and credit restrictions in the form of debt to income ratios.
The ongoing conflict in the Middle East has introduced a heightened level of geopolitical uncertainty, casting a notable shadow over the economic growth outlook for 2026. This uncertainty has the potential to influence global financial markets, disrupt supply chains, and place upward pressure on key inputs such as energy prices, all of which can dampen business confidence and investment activity.
In turn, these factors may contribute to more cautious behaviour across both consumer and corporate sectors, with flow-on effects for economic growth, lending conditions, and overall market sentiment in the year ahead.
