BNZ's Chief Economist Mike Jones expects house prices to finish 2025 "broadly flat" for a third consecutive year.
"The NZ housing market spent most of this year in a broad state of balance," Jones wrote in the latest BNZ Property Pulse report.
"Ample supply absorbed an increase in demand and national house prices consequently shuffled sideways," said Jones.
"The past few months' worth of housing data - including last week's Real Estate Institute of New Zealand figures for October - has done little to disturb our thesis the national market remains in a broad state of balance," Jones said.
BNZ is New Zealand's fourth biggest home lender with total exposure of more than $63 billion as of June 30 this year.
Jones also noted that although lower mortgage interest rates helped to lift housing sales, this was matched by an ample supply of homes for sale.
"New listings growth has just kept its nose in front of sales growth, such that unsold inventory has continued to rise," he said.
"In fact, it hit fresh 10 year highs in October."
"That continues to nullify any pressure on house prices to rise and is in contrast to expectations the inventory overhang would be worked off this year," Jones said.
On the interest rate front, Jones wrote that a likely 25 basis point cut to the Official Cash Rate (OCR) on Wednesday would probably be the last rate cut in this cycle, although the risk of a further cut (taking the OCR to 2.00%) could not be ruled out if the economy fails to improve next year.
"Either way, the downward trend in retail interest rates appears to be nearing the finish line," Jones said.
"Declines [in mortgage rates] are expected to be concentrated more at the short term of the [interest rate] curve."
"Longer term rates like the five year, may be in the process of bottoming out around now," he said.
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48 Comments
In 2026, house prices will resume a mild price appreciation of about 5% pa.
how can lending for housing increase at 5% PA without earnings also? Does incomes growing 5% mean 5% inflation?
How much higher would OCR need to be lifted to stop inflation?
5% house gains = 5% OCR = doom
Why?
Quite simply because of the effects from lower intetest rates coming through, with the typical 18 months delay.
Quite simply because of the effects from lower intetest rates coming through, with the typical 18 months delay.
This is interesting Dr Y and sounds plausible. Have you modeled this? How about an elevator pitch?
No need for fancy, complicated modelling JC. 30 years of experience tell me over and over again that falling interest rates lead to higher RE prices, but people just fail to account for the typical 18 months lag. If you're not sure this is true, look at what happened to RE prices when the OCR was dropped to 0.25% and equally look at what happpend to RE prices when the OCR was raised to 5.5%, with said delay.
KISS (Keep It Simple Stupid)
look at what happened to RE prices when the OCR was dropped to 0.25%
This was a bit of an anomaly on reflection though, as we had more people return from overseas, less people able or willing to leave the country, and greater ability for investors to leverage existing assets to purchase others and bid up prices, therefore higher population competing for the same resources with greater credit availability than say now after a modest reduction in prices.
No need for fancy, complicated modelling JC. 30 years of experience tell me over and over again that falling interest rates lead to higher RE prices, but people just fail to account for the typical 18 months lag.
I see. Hanging at the Ashley Church water cooler congregation or possibly reading from one of the photocopied handouts from the latest seminar?
Maybe I am Ashley Church ?
I don't see you rebuking my argument though.
What is your argument Dr Y? This?
If you're not sure this is true, look at what happened to RE prices when the OCR was dropped to 0.25% and equally look at what happpend to RE prices when the OCR was raised to 5.5%, with said delay.
That looks like a simple regression analysis to me. So quantify it. For ex, if the OCR falls xx%, then house prices rise xx% 18 months later.
Your narrative. Put your money where your month is.
I've put plenty of money on RE and made plenty without the need for "a regression analysis" or paralysis by analysis. You make it complicated and sound fancy, I prefer to keep it simple and make money.
Thumbsuck house price formula for suburban houses = [expected annual rental cost] / ([interest rate 18 months ago] minus 1.3%)
Higher for land with development potential, better outlook, exceptional quality build. Lower for opposite.
This had a strong correlation in the 15 years until 2023 when the extend and pretend took longer to unwind than the model predicted.
Prices are now starting to track the formula again.
Also update on the most recent house purchase - we've pulled out as the vendor attempted to hide damage from moisture ingress. We dodged a 200k bullet there with some good advice from our building inspector
Rates are indeed down. Options...
A) use that to leverage up beyond your means at normal rates (6-7%). A low yield rental, a new ute, overseas holiday etc. Killing any equity you have or could build.
B) use that to smash your principle while rates are, again, abnormally low and below the long term average. Set yourself up for easy life later.
Obvious really.
A balanced view is that some will do A), some will do B) and some a combination. The outcome being that there will be some uplift in house prices, hence my modest +5% prediction.
Do you think I'm wrong ?
Yes. Last 30 years that was probably the play sheet. That was then this is now. I think that misses a bunch of stuff that is now... different.
A) CCCFA. Banks liable for poor lending and buyers to actually have real income.
B) DTI requiring speculators to have real cash, vs paper cash stacked like jenga.
C) Govt debt. The last lot left a $100b on top of what was existing. This very high debt (historically) restricting Govt spending.
D) The economy, especially Akl and Welly, are in the toilet.
E) Infrastructure spend was MIA for the last 30 years. Wellington is in the poo, literally. Auckland has areas that can't take more development. This is highlighted in Plan Change 120. This is repeated to a degree everywhere.
F) Demographic tax hole. Its real and here now. More boomers exiting the workforce and the much needed youth workers buggering off never to pay tax here.
Probably a few more but thats the main ones. (Edit) just the domestic ones. Dosent include the crap happening overseas.
So..Do you think this allows owners to have the same tax free ride that property has enjoyed for the last 30 years...?
"This time is different" then... using plenty of logical but secondary reasons.
Just see in a year's time, +5% .
Ok sure.
Im seeing more money being put on overseas stock and crypto. Gambling I know, all about gains without supporting income. Eg Tesla and Rocket Labs...yet to have even a whisper of a divided.
All tax free cos gains were an "accident". Just like NZs favorite investment.
Im seeing more money being put on overseas stock and crypto. Gambling I know, all about gains without supporting income.
JC would probably have a better idea, but IMO there's a reasonable that crypto like BTC is a hedge against the S&P500 AI bubble.
We've already seen the likes of Turkey flock to BTC when the Lira crashed not too long ago, given they saw it as holding more stability than their own currency en masse. Traditionally this would have been done with the USD but that is losing appeal by the day.
What is there to stop other countries and individuals expecting the same store of value, or even an increase in value of BTC when there's the possibility of a flock to it if the stock market takes a major blow and confidence runs dry?
Indeed. Ease of transfer and ability to avoid Govt Makes it an option to flee a failing economy for sure. IIRC BTC it a surge when the European Bank made noise about seizing private deposits when the PIGS economies fell over. And also when people were evacuating money from Hong Kong to avoid the CCP.
G) after tomorrow’s cut interest rates are likely to have bottomed, with next changes quite likely to be increases to manage inflation (imported via falling NZD due to very low OCR…)
Hope not. Another surge of wage and price inflation will just bail out the leveraged.
Unfortunately too many kiwis naturally gravitate to A), as demonstrated by the mess all around….
And what might cause a deviation from this "typical" delay?
Are the rest of the population all in on this?
So the same people who have forecast gains for the last 3 years have now admitted they have been wrong and see it as flat?
"That continues to nullify any pressure on house prices to rise and is in contrast to expectations the inventory overhang would be worked off this year," Jones said.
Going to need a lot more sales to work through the withdrawn overhang, the developer hidden overhang and the BAG HOLDER overhang (wanting to get out ahead of the other poor bag holders).
So the same people who have forecast gains for the last 3 years have now admitted they have been wrong and see it as flat?
Hasn't the general consensus on here been for a house price apocalypse, and the most positive views are for a flat market?
Seems like in the absence of the apocalypse, people are needing there to have been a far more up-beat counter narrative, that needs to be wrong.
I spose that's way easier than having to fundamentally re-address how you're envisaging reality playing out.
Hasn't the general consensus on here been for a house price apocalypse, and the most positive views are for a flat market?
Hmmm. The prophecy that Aotearoans prescribe to is that house prices increase 7-10% pa. That would mean that house prices should be 22.5%-33.1% higher today compared to 3 years ago.
Kahneman and Tversky’s Prospect Theory demonstrated that people evaluate outcomes relative to a personal reference point, rather than based on absolute wealth or utility. When prices fall from a previously established high, individuals anchor on this reference point and perceive the decline as a loss - even if the asset is still above their original purchase price. The psychological impact of losses is estimated to be 1.5 to 2.5 times stronger than that of gains. This would be psychologically devastating in Aotearoa.
And it explains your thinking P. Because you perceive prices as "flat", it's an emotional safety blanket. Of course, the market price is largely a mirage in the Aotearoa Ponzi.
Hmmm. The prophecy that Aotearoans prescribe to is that house prices increase 7-10% pa. That would mean that house prices should be 22.5%-33.1% higher today compared to 3 years ago.
I think some people reckon they double every 10 years. Few to no people say 7-10% p.a.
You interpret things extremely liberally. Which you have to I guess, otherwise you'd move on and do something more worthwhile.
I think some people reckon they double every 10 years. Few to no people say 7-10% p.a.
So what is the probability that a 3-yr period out of 10 years will be flat? How does that impact price expectations?
Well, given the traditional 7 year economic cycle, you would expect periods of low or negative pricing growth.
Let's do the simple math shall we P. If house prices double every 10 years, but 3 of those yrs experience zero growth, then CAGR is 10.4%.
Look. The biblical magic of numbers 7 and 10 again. Just like promised.
It's your story I guess.
They will be wrong again probably, will start rising.
A 10 year high in unsold stock is not the hallmark of a balanced market
The first comment on this article was made by an unprolific troll or at least someone with an unbalanced portfolio.
The first comment on this article was made by someone who doesn't own any other residential property in NZ, apart from my home.
Some people can make comments based on data leading to the most likey outcome rather than for personal gain or biais.
Edit: Also, stop editing your comments after others reply to it, it's sneaky.
Edit: Also, stop editing your comments after others reply to it, it's sneaky.
Check the time stamps again and swallow hard.
"Check the time stamps again and swallow hard."
No need to be rude. Of course my comment's time stamp comes after yours, since I could only ask you to stop editing your comment, after you actually edited it. Also, it's dishonest to try to deny editing your comment.
Bank Economist..."broadly in balance". Geepers.... things must be bad if thats the lead spin.
Listings up, unsold overhang up, developer unlisted stock up, receiverships up, future renters exiting west up, rates up, insurance etc up, capital gains noise up, and tenants relocating for less rent up. Rents down, available tenants down, rents down, interest rates down, average price down.
Can't see why housing speculation will save the over leveraged. Lets face it yield went out the door ten years plus ago.
House prices still too high. They need to come down more, not stay flat. I hope Yvil is wrong. I own and live in my own home and bought it over15 years ago. I'm not concerned about it going down further. The rest of the market will go down as well.
I don't disagree with you. Note, my comment was not about whether house prices were too high or not, but where they are likely to be in one years time. I prefer to deal with what is most likely, rather than the subjective notion of what is right or wrong.
Dreaming Yvil......the 30 to 40 year ponzi is now broken and dead.
The RIP sign went up early 2022.
The bag holders buying up madly in the last 5 or 6 years are now buggered. Financially knackered.
Fiscally cornered rats, with no good escape hatch, without scars!
Dreaming Yvil......the 30 to 40 year ponzi is now broken and dead.
People dedicate their whole lives to ensure the Ponzi doesn't break.
Amazing article out of the U.S. where the poverty line is calculated as 3x the cost of a minimum food diet in 1963, adjusted for inflation. So for income inadequacy, the threshold for a family of four would be $31,200. The bureaucrats work on numbers close to this.
But in reality, the number is closer to $140,000.
It’s all about inflation in the non-discretionary basket. To live a 1967 middle-class life in the U.S, you need a “wealthy” income.
"Dreaming Yvil......the 30 to 40 year ponzi is now broken and dead."
Will you have the courage to admit you were wrong in a year's time when house values are up, or will you disappear into thin air, or change your name yet again, or find plenty of other excuses why the prices actually went up ...?
Thats rich.....from a totally bad and failed trend caller since 2023......Yvil.
What makes your 5th or 6th round of: "Its bottomed" "its going up now" "bbbbbeeee quick" be any more credible, than your last failed writings of 2023, 2024 and 2025??
Laughable calls, that the Crashed NZ Housing market, is about to spark into good gains again......hahahahaha
You get me confused with others. NOT ONCE have I called "a bottom", NOT ONCE have I said "be quick", NOT ONCE have I said "it's going up now" since 2023. And I also haven't said that "the NZ housing market is about to spark into good gains, I said, if you read my first comment: "In 2026, house prices will resume a mild price appreciation of about 5% pa".
Stop making things up, get your facts right. Is that too much of an ask?
Reasons why I think the NZ Ponzi is over. I’m not talking an absolutes here. Just the general theme.
- There are so many more sexier and convenient options to invest in from your phone. Sharsies, crypto, gold/silver.
- Having someone live in your investment is full of snakes and ladders. The tenants have way more rights these days and their attitude towards landlords isn’t full of respect in generations prior.
- The stigma attached with being a landlord. Many look at landlords like a leech extracting life out of the economy, making themselves rich on the backs of the poor.
- Our plummeting birth rates. Our best and brightest leaving for better opportunities being replaced by third world migrants. The top 3 out of 5 surnames over the last 5 years have been Indian surnames. I’m not saying Indians can’t be successful, they may not be willing to participate in the ponzi and have different ideals.
The ones holding on to this “just being part of the cycle” are either 50+ and thinking the good old days are just around the corner and don’t think very deeply about what have been the factors surrounding this incredible run property has had, and the naive who bought at the wrong time.
All the Spruiker Landlords, are now stinky bagholders.......and very slow to read the room!
Real incomes in Wellington continuing to fall for the vast majority (Govt, SOE, Private who mostly rely on Govt spending) with no new net employment.1-2% nominal been the norm for most for at least 3 years so going backwards. Young would be workers/eventual house buyers continuing to leave for Ausy and elsewhere.
Until significant new employment is created in Welly or a major event happens (another Covid, widespread war, Ausy loses too many significant mineral supply contracts with China?) my guess is that Welly house prices will continue to fall in real terms... could be a long time but who can predict the future when it comes to this stuff?!
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