Economic recovery gathers steam

After a bruising couple of years, the economy is finally showing signs it’s turned a corner. Lower interest rates are doing their job, consumer confidence is creeping back, and economists are cautiously optimistic about 2026. But if you’re expecting a housing boom or gangbusters growth like the pre-pandemic days, pump the brakes – this recovery’s going to be steady, not spectacular.

From recession to recovery

New Zealand’s just emerged from what economists are calling a “protracted economic downturn.” Real GDP per capita fell 4.8% in the two years to September 2024, worse than the global financial crisis. Tight monetary policy crushed inflation (which peaked at 7.3% in 2022), but it also crushed demand, business confidence, and household spending.

Now the tables are turning. The RBNZ cut the OCR from 5.5% to 2.25%, and ASB chief economist Nick Tuffley reckons we’re seeing clear signs the recovery’s gathering pace. Consumer spending’s up, particularly on big-ticket items like cars and electronics. Rural incomes are holding strong despite global uncertainty. Tourism’s rebounding – we’re back to 88% of pre-Covid visitor numbers.

For 2026, Treasury’s forecasting GDP growth of 2.9–3.0%. ASB’s picking 2.5% or higher annual growth. The IMF predicts 2.7%. These are modest improvements, but after the pounding we’ve taken, they still feel pretty good.

CEO confidence returns

Two-thirds of New Zealand’s corporate leaders are confident about their company’s performance over the next year, according to the inaugural Deloitte APEC CEO Survey. More than half are optimistic about the global economy. That’s a big shift from the doom-and-gloom that’s dominated boardrooms for the past couple of years.

Deloitte NZ CEO Mike Horne says Kiwi leaders are bullish. “Our leaders are not waiting for certainty, they’re creating it,” he told the NZ Herald. After years of turbulence, underlying economic conditions are stabilising. Inflationary pressures are easing, access to capital’s improving, and supply chain disruptions have largely sorted themselves out.

The focus is shifting from survival mode to growth mode. Technology and innovation remain the top growth drivers for New Zealand firms, but within three years, new products and geographic expansion will take the lead. Nearly half of NZ companies expect most of their sales to come from APEC economies in three years, up from less than a quarter today.

What this means for property investors

The housing market is in what ASB’s Nick Tuffley calls “a sweet spot” – for buyers, anyway. Lower interest rates combined with high inventory mean buyers have more choice and confidence than they’ve had in years. It’s very much a buyer’s market right now.

Housing confidence has hit its highest level in 15 years. Twenty-eight percent of people think it’s a good time to buy property, with 54% expecting home loan rates to fall further. However, Tuffley warns this window won’t last. “I think it’s a case of a mild turnaround in the housing market, more than a dramatic one,” he said. “There’ll be a greater level of sales turnover. The amount of stock on the market will start to reduce, and prices will start to edge up.”

Bank forecasts for 2026 house price growth cluster around 4–5%:

• ANZ: 5% growth
• ASB: 5.1% growth
• BNZ: 4.4% growth
• Westpac: 5.4% growth
• Reserve Bank: 3.9% growth

CoreLogic’s Kelvin Davidson agrees conditions are turning toward some growth in 2026, though he expects it to be muted. Property values have drifted slightly lower in recent months, with declines of nearly 4% in Auckland suburbs like Takapuna and Clevedon, while affordable areas saw gains of more than 5% in parts of the Grey District, Buller, and South Taranaki.

“There is certainly some resilience among standalone houses and townhouses in lower-priced areas, which will tend to have affordability on their side,” Davidson said.

Interest rate reality check

While the OCR hit 2.25% in November, longer-term mortgage rates are already starting to creep back up. Westpac was first to move, lifting two- to five-year rates by 30 basis points even as it cut its 6-month rate.

Markets aren’t expecting more cuts. In fact, they’re pricing in rate hikes from mid-2026. The consensus among major banks is that the OCR will stay at 2.25% through most of 2026, then start climbing toward 3% by 2027–2028. Tony Alexander and the major banks believe we’ve hit the bottom of the cycle.

For mortgage holders, this means:

• One-year rates might drop a tiny bit more to around 4.3–4.5%, but that’s it
• Two- and three-year rates (currently around 4.4–4.6%) probably won’t fall further
• From mid-2026, rates will start trending upward, potentially hitting 4.9% by December 2026

ANZ’s advice? If you’re waiting for rates to drop further, you’re probably going to be disappointed. Consider fixing for three to five years or splitting across multiple terms while rates are still relatively low.

Headwinds and challenges

It’s not all sunshine and favourable winds. The recovery faces some significant headwinds:

• Unemployment: Still at a nine-year high, meaning household income stability is still shaky.
• Slow productivity growth: New Zealand’s sustainable growth rate is only about 1.5% annually due to chronically low productivity. That’s a structural problem that won’t be fixed by lower interest rates alone.
• Global uncertainty: US tariffs, global trade tensions, and a potential resurgence of inflation offshore are all risks. Treasury lowered its assumption of trading partner growth because of tariffs, knocking 0.2 percentage points off GDP forecasts.
• Migration slowdown: Net migration’s fallen sharply from its peak, which will reduce population-driven demand for housing and consumer goods.
• Regional variation: The recovery won’t be even across the country. Auckland will benefit sooner from lower rates and government infrastructure spending. Wellington will continue to struggle as it absorbs public sector job losses. Southern rural areas might actually outpace the main centres due to strong agricultural incomes.

Housing affordability still problematic

Even with modest 4–5% house price growth, affordability remains stretched. Infometrics’ Gareth Kiernan reckons affordability and debt servicing costs are major constraints on buyers’ ability to bid up house prices. That’s why his forecast sits at the conservative end (around 5%) compared to some of the more bullish banks.

First-home buyers are in a particularly tough spot. While lower interest rates help, deposit requirements and high property prices relative to incomes mean many are still locked out of the market. The people buying now tend to be those with established equity or substantial savings who can take advantage of the current buyer’s market.

What property investors should do

1. Don’t wait for lower rates. They’re probably not coming. What you see now is likely as good as it gets.
2. Consider longer-term fixes. With the spread between one-year and three-year rates minimal, locking in rates now before they start climbing makes sense.
3. Focus on cashflow fundamentals. With modest price growth ahead and potentially rising rates from mid-2026, your property needs to stack up on rental yield, not just capital gains hopes.
4. Look at regional opportunities. Areas with strong economic fundamentals (good employment, infrastructure investment, affordable housing stock) will outperform. Don’t assume Auckland will lead the recovery.
5. Plan for a world of higher borrowing costs. The ultra-low rates of 2020–2021 aren’t coming back. Mid-5% mortgage rates appear to be the new normal, possibly creeping higher through 2026.

The verdict

2026 looks set to be a year of modest, steady recovery. GDP growth around 2.5–3%. House prices up 4–5%. Interest rates plateauing, then edging higher. Unemployment gradually falling. It’s not exciting, but after the battering the economy’s taken, steady progress is exactly what we need.

For landlords and property investors, the opportunity’s in making smart, fundamentally sound investment decisions while conditions favour buyers. The game is about cashflow and playing the long game.

As Nick Tuffley puts it: “The chapter of ‘bad news’ is closing, and Kiwis can look forward to a year of renewed momentum. It’s time to enjoy a smoother ride after the potholes of the past year.”

Call Goodwins on 0800 GOODWINS to discuss how 2026’s economic outlook might affect your property investment strategy.