The Reserve Bank's admitting to being surprised that house prices haven't been increasing as they expected, while also saying that only about half of the impact of the interest rate cuts made since last year has so far been transmitted through into the economy.
The RBNZ's now, in fact, forecasting that house prices will fall 0.3% for the full 2025 calendar year, after quite a big reversal since its last issued forecasts.
The new forecast is contained in the data accompanying the RBNZ's latest Monetary Policy Statement (MPS).
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.
At the media conference on Wednesday, after the RBNZ had lowered the Official Cash Rate (OCR) to 3.0% and signalled it may go to 2.5% by the end of the year, RBNZ chief economist Paul Conway said "normally we would expect house prices to be increasing a bit more at this point in the cycle but they are not. We are not expecting them to increase a great deal over the coming 18 months".
"When you look at household consumption it is very highly correlated with changes in what’s going on in the housing market, so, there’s a bit of an open question there. Can the New Zealand economy grow without that sort of wealth effect coming through from housing?"
Assistant Governor Karen Silk said of the 250 points of cutting that have been done to the OCR [taking it down from 5.5% as of last August to 3.00% now] "we’ve probably seen 50% of that transmit through, so, there’s another 50% still to go.
"So, there’s certainly still more stimulation still to come that will support freeing up of disposable income at the household level and eventually feed into house prices and residential construction as a consequence of that as well.”
In terms of the slow transmission of the lower interest rates, Silk said "there’s a couple of things that we would probably call out".
"The first of those is consumer behaviour itself. If we think about what’s actually happening in terms of refixing mortgage rates, people have opted to stay in shorter terms, on demand, or up to six months at much higher rates in the belief that they would come lower before they started to move out [their terms].
"So, as that happens it means that your transmission is actually slower than you would anticipate.
"That’s changing. So, what we are now seeing is households move to refix for longer terms at much lower rates and that’s why we see the average stock rate coming down over the next 12 months.
"So, if we saw it peak at 6.4%. It’s probably running about 5.6% now and it will be in 12 months time slightly below 5%. So, there’s that aspect of it coming through."
Silk said the second aspect to the slowness of transmission was what's happening with disposable income for households.
"So, what’s happening with electricity prices, what’s happening with rates, what’s happening with food prices. So you are getting a little more contraction there. So, money is going from discretionary spending into maintaining what they would regard as essential requirements that they need to do. So, there’s a little bit of that going on as well.”
Governor Christian Hawkesby noted that monetary policy "lags" are "long and variable".
“There’s a lot of uncertainty about how quickly these things will work through.
"That’s what gives us the confidence that when we say monetary policy works, we say that interest rates low or high do have an impact and you’ve just got to have confidence it will work its way through.
"The challenge is there will be other things that go on along the way and that’s where we need to constantly re-adjust or recalibrate about whether we have done enough or we need to do more and particularly in the zone that we are in at the moment where we’ve done a lot in a rapid period - now we start feeling our way."
62 Comments
Anyone sick of hearing the RBNZ use the word uncertainty?
I'm not sure (is that better ?)
Perfect, a one page MPS with that phrase would sum it up.
It looks like the median Interest commentator is far better at forecasting house prices than the RBNZ.
Only when prices are going down
Rents, population, house price and economy all in decline. Rates, cost of food, departure to Australia, national debt, job losses, withdrawn listing, and receivership's all up.
Tell me again why would house prices would rise?
I'd buy another investment property tomorrow at the right price, but even I will concede the dynamics of residential property investment in NZ are not that appealing. Rents are flatlining and the big unknowns are insurance and rates. From an afterthought a decade ago, they are now a $250 p/w expense and that just destroys the numbers.
Even with price falls and lower mortgage rates, you'll be doing very well to find something at breakeven. You really would be much better off putting cash into shares at the moment.
At the right price a lot of things make sense. That is indeed the crux.
Wow you got $13,000 a year in insurance and rates.... boom.
I don’t think they have stacked up for a while if you pay cash. If however you get the bank to buy it for you and then get inflation to pay off your debt, that can work well. Provided you don’t go into negative equity that is.
forecasting that house prices will fall 0.3% for the full 2025
like anyone can get a decimal right in a housing forecast.
I would prefer a rang like 0-5%, 5%-8% etc
but the pointy heads love there spreadsheets
"When you look at household consumption it is very highly correlated with changes in what’s going on in the housing market, so, there’s a bit of an open question there. Can the New Zealand economy grow without that sort of wealth effect coming through from housing?"
Isn't that the question that we pay Paul and the army of pointy heads to answer?
Or maybe he doesn't want to say "yes, it's all about the Ponzi."
The Reserve Bank's increased its house price forecast for next year and now sees prices rising by just over 7% in 2025. (link)
Their predictions are reflecting their performance, and not ageing well. Turns out they tried goading the public into confidence and greater debt, but surprise surprise, the public are not as gullible as they assumed.
Central banks are all about influencing behavior, yet the RBNZ doesn't hire any behavioral economists or even actively measure behaviors, or more importantly, changes in behavior over time. People scoff at REAs and the way they position themselves as market expert and observers. In reality, the collective understanding of those REAs is invaluable to really understand what's going on in the all-important propadee market. And why's that? They have skin in the game and are fighting for their livelihoods. Anyone who has read the work of Taleb should understand this through the illustration of Fat Tony vs the finance traders and experts.
While RE agents are usually consummate bs artists, it should be remembered that "they only eat what they kill" ie income 100% commission.
Usually it's the property owners and potential buyers who need the reality checks, not the agents.
REAs do have the pulse of what is happening.
But they choose to say something else.
Don't forget they are paid by the seller. Buyer beware covers it.
It's no wonder this downturn has become self reinforcing. Increasing employment uncertainty whilst a borrowers biggest asset is depreciating whilst interest is being paid whilst being forced to digest rocketing Council rates, insurance and food for starters. The answer lies over time as our productivity improves, cost of living inflation remains moderate or falls, our collective incomes increase and a miracle shift in focus away from selling ever appreciating ATM purposed housing to one and other takes hold.
An increasing number of frustrated and short sighted Portfolio Lords are operating in an arena of increasing surplus stock.
I used to mention about the synergistic relationship between the Ponzi, business activity, and prices (which can be different from inflation) at the water coolers. This synergy happens on the way up and on the way down. Common reaction response is 'yeah...nah'. I think the reason for that response is the following:
1. People generally believe the Ponzi's dynamics are thought to be independent of the other sectors of the economy or the Ponzi's influence on the economy is overstated
2. People are conditioned to believe that the RBNZ can manage mkts like a puppet on a string. Now there is plenty of evidence that suggests that this may be true. But there are outliers, like Japan. And of course, people think that for Aotearoa to go through 20+ years of deflation is impossible. That cannot be disputed. Nevertheless, I believe there is a point where the individual is financially 'tapped out' for the machine to break down- it probably requires 4 out of 6 standard deviations.
Typically RBNZ actions don't fully flow through the economy until a year later
Yes but that's assuming attitudes and behaviors are constant. If I do repeat experiment with rats and cheese to open a trap door, I might base my assumptions on the past 10 experiments. Those assumptions become reinforced. But what if the rats don't respond in the next 2-3 experiments? Their behavior changes and they don't or can't take the bait.
Of course there are better examples than this. But the point is the same - there is a time when the rats don't respond as you expect or want. The RBNZ and the ruling elite are terrified of this happening.
Just bought into the coffee ponzi and here to chat about the property ponzi using my phone ponzi.
If you keep that up, you'll end up with a ponzi ponzi.
Just bought into the coffee ponzi and here to chat about the property ponzi using my phone ponzi.
Robusta bean prices up 200% in 10 years while Arabica up almost 300%.
Some of those price increases can be attributed to monetary expansion but commercial banks will not be creating credit for the hoi polloi to buy coffee beans.
Therefore, the Ponzi dynamic doesn't really apply to coffee.
Phone ponzi is the one that has had the most price erosion.
...while also saying that only about half of the impact of the interest rate cuts made since last year has so far been transmitted through into the economy.
OK so where's the corresponding economic growth?
So, money is going from discretionary spending into maintaining what they would regard as essential requirements that they need to do. So, there’s a little bit of that going on as well.”
No, there's A LOT of that going on.
No, there's A LOT of that going on.
I can simplify what they're trying to say: greater share of income / wallet is being allocated to the lowest rung on the hierarchy of needs.
Which also has the highest inflation. Supermarkets are the current day Giffen Good
Many are concerned by how long this recession has lasted, watching friends at work made redundant and watching known companies forced into liquidation. All the time the Government and the Spruikers have told us all is well just another quarter or half year and the small seeds will start to grow.
Well peoples patience has run out and even those with money are non-believers of the repetitive but never appearing green shoots news.
I think the RBNZ should have gone 50 to signal just how bad things actually are, 1/3 on the decision board felt this way and just one more and it would be split decision.
Things are much more serious then we have been told by our leaders, who need positivity to get re-elected.
People realize this disconnect from what's said to what's observed, and the animal spirits are hiding , waiting for the sun to come back out. The rulers never tell the truth people, hell the Iron Lady said it will all come right and it did not.
Personally I think even with 2 year mortgages at 4.25% things are going to feel very very flat while people pay down debt.
This recession will keep rumbling on as the NZ property market will not re alight until people believe it cannot fall further.
Indeed. Debt they should have smashed when rates were 2% vs loading up like junkies as they did. After all detox sucks...
Those that played it smart (deleted debt, sold at peak etc) are sitting on vulture funds waiting for the mortgagee sales to really get going.
Kaaaark.
I think that there's a few pockets of housing are doing ok in the South Island. I've been watching a few areas in & around ChCh closely for a few months & think prices for good family homes are holding up.
In some cases even when questions: 42 Aylsham Casebrook sold for $1.2M this morning (cv $1.11M): the building report indicated it needed a renovation/redecoration & I thought that the eq repairs were rough. A 1/4 acre section though.
Are we at a neutral interest rate yet? Are the monetary transmission conduits working as well as they used to?
I'd say no we are not at a point where the overall fiscal and monetary mix is stimulative. If you are not in the positive zone then you are going to go backwards.
I'd have to say that loan to value ratios, CCCFA impediments and the like are being underestimated as a cause of the lack of response to monetary stimulus.
Also council rates and insurance premium hikes could be mitigated if the govt was to bolster the ability of councils to pay for the increased responsibilities they have lumbered them with. There are ways to decrease local inflation if govt has a mind to.
loan to value ratios, CCCFA impediments
Are these impediments, or are they successful requirements to stop the greed of bankers and speculators creating inflationary chaos?. They are good practice I say, especially if it prevents the risk of any Bankng failure being shouldered by tax payers.
The difference everyone feels shows how out of whack Bank lending and risk taking had become.
The tax avoiding flipperati run is over.
They are somewhat successful requirements but we won't be able to see this until another year or two down the track when we can look back and compare with a previous period of OCR lowering and the response to stimulus then. Less ability to use a house as an ATM to reinvest in more housing, a business etc, the slower the increase in the velocity of money in society, slower job growth, slower recovery. And here we are.
You just need a business or job that delivers the velocity. Both those options actually pay tax and would help NZ a lot more than tax avoiding house flipping and speculating. But hay...perhaps National and Labour are more alike than they think.
What I thought was bizarre was watching Luxon and Willis last night with smiles on their faces after the rate cut and "surprising" commentary from the RB that followed.
The RB have turned more dovish because the data coming out is shit. There's nothing to be proud of about that.
Simply because the more the RBNZ does the less they are under pressure to fiscally stimulate, which they cannot really do without borrowing more, as they will not raise taxes.... If they borrow they look just like Labour. Not sure where the money for new planes and helicopters is coming from?
It will get worse yet and the RBNZ know it.
Smile and wave boys, smiiiiile and wave
Her new line to describe anyone complaining about the economy is:
"merchants of misery" and a light hearted laugh.
When prompted by the reporter about families struggling to buy food she switched to "empathetic face". But the Willis version pales into comparison with Jacinda's furrowed brow.
Luxon was struggling to keep up. Time to giggle or look worried?
Seymour also said the low rates were thanks to the government not spending, I guess that’s right in a way, they caused a massive recession and the RBNZ has to cut.
"They caused a massive recession... " "They" is primarily the RBNZ who raised interest rates to lower demand so as to reduce inflation. That was exactly the announced plan & the only effective blunt instrument in the RBNZ toolbag.
The RBNZ also primarily created the non tradeable component of nz inflation (& house prices) in 2020-21 by irresponsibly crashing interest rates. With some help from Labours helicopter fiscal spending running past the Covid disruption need.
I agree, it’s the RBNZ. I don’t think the coalition can take credit, and they shouldn’t, the only reason interest rates are going down is because the economy is knackered.
Yes. It just reinforces the fact that Luxon and Willis don't understand anything about macroeconomics or monetary policy.
As house prices go up there may be wealth effect. Maybe.
But as house prices go up unfortunate buyers certainly suffer a poverty effect. Certainly.
"When you look at household consumption it is very highly correlated with changes in what’s going on in the housing market, so, there’s a bit of an open question there. Can the New Zealand economy grow without that sort of wealth effect coming through from housing?"
Said yesterday that this, lack of house price growth, was the major concern of those that voted to lower the OCR. But what house prices are doing (up or down) is not part of their mandate, is it?
Pretty poor show when even they are now admitting our economy is based on house-trading.
On the plus side however, it is great to get this discussion out to the masses and get people thinking about the possibility of what their future looks like without never ending house price growth. Also for the masses to comprehend this, it will assist in more educated voting in the next elections (I hope).
Pretty poor show when even they are now admitting our economy is based on house-trading.
It's based on cheap debt. Consumption, jobs, the whole shootin kaboodle. We have to be given money for almost nothing to go out and feel good spending, even if we don't "need" to, as of the sky will never fall.
Virtually all of our lifestyles have become dependent on this. Even if you're not exposed to debt, your income is likely exposed to those who take it on. The items you buy, are subsided by the volumes that the debt affords.
So they either keep kicking the can, or we will get a short, sharp shift downwards in lifestyle that we can only finance with what we earn or already have.
This is a guaranteed certainty once pension drawings exceed deposits. But possibly even before.
Wow. We agree. You can alter your income and or lifestyle to not live beyond your means...now.
Politically unsexy.
Also indicative of our (human) ability to never be satiated. Bigger, faster, better, more. Give the people the credit, they will spend it.
Surely it’s obvious to anyone with half a brain that house prices can’t go up more than wages forever. So we have to learn another trick sooner or later.
I remember calculating that houses would reach $1 billion in Auckland in 100 years if they doubled every 10 years, while the average wage would be closer to $1 million. So you’d need to save 100% of the average wage for 1000 years to buy an average house. The likes of Ashley Church thought that was conceivable.
Surely it’s obvious to anyone with half a brain that house prices can’t go up more than wages forever
Have you been to Mumbai?
You can live in a corrugated lean-to or a $6 billion apartment.
Yep been there. Hopefully we don’t end up with the disparity they have.
The land under a corrugated lean to is already worth a fortune here, if it doubles every ten years you’d need to be in the top 1% to afford one.
You can get land cheap in NZ, it's relative to who you want to compete with for it.
The point is house prices can indeed keep outstripping many people's wages. It's sorta like saying "I've had enough". You clearly haven't, but have expressed your displeasure.
Not sure Mumbai is proof of anything yet. Once the population gain and wealth gain wear off, they may realise that $6 million for an apartment makes little sense.
I said 6 billion, but it turns out it's $600 million.
There's no reason a shrinking pool of wealthy people can't bid up property prices. It'll just be really biforcated, some areas will shrink into depression, and others will remain keenly fought over. Hence in Japan, you can get a nice semi rural 3 bedroom house for 20 grand, or a shoebox in Tokyo (wherever everyone wants to live) for hundreds of thousands, or millions.
I don't think we're even halfway through how polarized our society can become.
Yeah I saw the b, assumed it was a typo.
Interesting you mentioned Tokyo, that is the perfect example of what can happen after the ponzi maxes out.
We can expect home ownership rates to half again and most people live in shoe boxes?
Wages basically stagnated once the ponzi was over. And real estate in Tokyo has gone up 140% in 10 years. So houses can keep on outstripping wage growth, even with a diminishing pool of owners.
Be careful what you wish for kids.
All of the comments and they highlight is why a land tax is needed. It's a sure way to stop such speculative stupidity.
It still doesn't resolve the ultimate problem of too many people all competing for a limited amount of living space. Governments have tried for centuries to tax property to overcome this, none I know of have succeeded, the problem just migrates.
We have lots of space. We just need to stop bringing in millions more to prop up the ponzi. No one voted for massive increases in the NZ population. Ever.
Ps a lot that arrived in the last ten years were only interested in a route to Straya. Departures west underline this.
We have loads of space but the human tendency is for everyone to proliferate on a small portion of it. Even Japan highlights this, rural properties are almost free, yet most people will fight each other to live on top of one another.
NZ has always bled people to Australia, it happens in bursts and has done on and off for as long as NZ has been a nation. My granddad did it in the 40s. You're effectively arguing for a migrant nation to be something it's not.
Me: Is it possible that NZ has reached the peak in its private sector credit cycle? In other words NZ individuals and businesses do not have the income to take on additional debt repayments.
ChatGPT:
1. Debt Levels Are Already High
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NZ households are among the most indebted in the OECD, with household debt >160% of disposable income.
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Many businesses, especially SMEs, are also leveraged, particularly in property, construction, and agriculture.
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With interest rates elevated (even after recent cuts), servicing existing debt is consuming a large share of income, leaving little room for new borrowing.
2. Income Constraints Limit Further Borrowing
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Real wage growth has been weak or negative in many sectors, particularly for low- and middle-income households.
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Businesses are reporting falling revenues and profits, reducing cash flow available for new loans or higher interest payments.
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Debt capacity is therefore constrained: even if banks are willing to lend, borrowers can’t take on more debt without risking default.
3. Rising Delinquencies and Defaults
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Early signs of stress appear in mortgage arrears, credit card delinquencies, and SME loan reschedules.
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This is typical near the peak of a private credit cycle, when past borrowing has reached practical limits.
4. Effect on the Economy
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When households and businesses can’t borrow more:
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Consumption growth slows, especially for big-ticket items like housing, vehicles, and appliances.
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Investment is constrained because firms don’t have access to cheap credit to expand operations or buy equipment.
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Any stimulus from rate cuts is muted, because “liquidity is not the binding constraint — capacity to repay is.”
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5. Signs the Cycle is Peaking
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High debt-to-income ratios for households and SMEs.
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Slowing credit growth or even contraction in some sectors.
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Flat or declining house prices: NZ house prices have plateaued in many regions after years of rapid growth.
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Consumer and business confidence is weak, meaning people are reluctant to borrow even if they can.
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6. Implications
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NZ is likely entering the deleveraging phase: households and businesses reduce borrowing and cut discretionary spending.
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GDP growth may stall or contract, because private sector credit expansion has historically been a major driver of NZ economic growth.
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This phase is consistent with rising unemployment, lower business investment, and subdued consumption.
Bottom Line
Yes — it is plausible NZ has reached the limits of its private sector credit cycle. Even if interest rates come down, the economy may not respond strongly because households and businesses lack capacity to take on additional debt. This reinforces the picture of:
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Weak GDP growth in Q3–Q4 2025,
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Rising unemployment, and
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Limited private sector stimulus from credit expansion.
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