Recovery delayed

Coming into 2026, the outlook for New Zealand’s property market was the most optimistic it had been in three years. The OCR had fallen from 5.5% to 2.25%, mortgage rates were easing, and business confidence was building.

Most bank economists had pencilled in house price growth of 2–5% for the year, with some picking as high as 5%. Then, on 28 February, the United States launched strikes on Iran.

The closure of the Strait of Hormuz that followed drove oil prices sharply higher, pushed inflation forecasts well above the Reserve Bank’s 3% target ceiling, and triggered a collapse in consumer confidence that, at its worst, had a net 38% of households planning to cut spending.

Where the market stands

The latest Cotality Home Value Index puts the national median home value at $808,187, down 0.6% over the year and 0.1% over the past three months. The national market is still 17% below its early-2022 peak. Cotality chief property economist Kelvin Davidson said modest declines in property values in the coming months would not be a surprise, though he framed any further falls as likely to amount to only one or two percentage points.

ANZ senior economist Matthew Galt is forecasting a 2% price drop for 2026 overall, attributing it to the fuel crisis, weak consumer confidence, and rising interest rates. Kiwibank sits at the other end of the range, projecting 2–3% growth by year-end, though that forecast has already been revised down.

Independent economist Tony Alexander observed in late May that “none of us is likely to get our forecasts right”, which is a candid acknowledgement that the Iran War has introduced a degree of uncertainty without modern precedent.

The regional picture reinforces the two-speed market that has characterised New Zealand property for the past two years, with Wellington and Auckland continuing to drag on national averages.

The rates outlook: a hike is coming

The Reserve Bank held the OCR at 2.25% on 27 May, but the decision was a tough one. The Monetary Policy Committee was split 3–3, with the governor’s casting vote the only thing standing between the current rate and an immediate 25-basis-point increase.

The RBNZ now projects CPI inflation to peak at around 4.2–4.3% in the September 2026 quarter, driven primarily by fuel price pass-through, before returning to target in mid-2027. Its new growth forecast for the year to March 2027 is 1.7%, down from the 2.8% it was predicting as recently as November.

The RBNZ’s own projections signal the first rate rise in September, with the OCR peaking at around 3.3% in 2028. Westpac’s Kelly Eckhold has gone further, warning that the delay in beginning the tightening cycle increases the risk of an even higher OCR before inflation is durably back at 2%.

Two-year fixed mortgage rates have already moved – ANZ lifted its two-year rate by 20 basis points to 5.49% following the May OCR decision.

Alexander has been consistent in his view throughout: fix for three years. “Periods of enhanced uncertainty mean gambling on rate movements by fixing for only a short period is riskier than normal,” he wrote in late May.

Most borrowers are fixing for two years, but Alexander regards that as accepting interest rate risk at the precise moment uncertainty is highest. His reasoning is that three years gets borrowers “well beyond the period of lingering inflation and rate uncertainty associated with the oil price shock.”

Construction at a 10-year low

One piece of the current picture is getting less attention than it deserves: residential construction activity has fallen to its lowest level in a decade. Stats NZ data shows the value of residential building work in place fell 5% to $17.6 billion in the year to March – a 10-year low.

Infometrics puts building activity down 3.5% in the March quarter alone. Combined Building Supplies Co-op CEO Carl Taylor, speaking to Newstalk ZB, noted that consents can tell you what may happen, but only if developers spend the money.

The implication is that new consent issuance is rising – up 16% year-on-year in April according to Stats NZ – but consented projects are not being built at the same rate. Developers are sitting on approvals, waiting for conditions to improve before committing to construction.

When conditions do improve – lower rates, stronger confidence, and a clearer political environment after November’s election – those projects will start moving. But there will be a lag because construction pipelines take time to rebuild.

The investor who buys existing stock in a quiet market is buying ahead of the point where new supply catches up with demand. That constraint may be further away than it looks right now, but it is being set up.

The case for not panicking

Alexander’s June analysis introduced a counterintuitive framing of the Iran War’s effect on New Zealand. The closure of the Strait of Hormuz has disrupted not just oil but also fertiliser supply. Crops are not being sown in parts of the world that depend on imported fertiliser.

For a country that can feed 40 million people and is structurally positioned as a protein and dairy exporter – at exactly the moment the world is ageing, seeking more protein, and worried about food security – this is a demand tailwind.

Alexander sees rising farm incomes in dairy and red meat as a slow-burn positive that will work their way through rural economies, into urban labour markets, and eventually into consumer confidence and housing activity.

The supporting data is starting to appear. Alexander’s monthly survey of real estate agents showed the share reporting buyers displaying FOMO doubled from 5% to 10% between May and June – still low but moving in the right direction.

Consumer spending plans in June registered a net negative 7%, recovering from the negative 38% recorded in April. Investors in the market were still down sharply on pre-war levels, but first-home buyer activity was less weak than a month earlier.

Cotality’s Davidson adds a useful cultural note. More people, he observes, are starting to say “this is actually a good market” – balanced, accessible, not running hot. A market where prices are predictable and stable is, in many respects, a better environment for investors doing the fundamentals properly: buying at reasonable prices, holding quality stock, and extracting yield rather than gambling on capital growth.

What this means for investors

A further one- or two-percentage-point fall in house prices that Cotality considers possible is not a crisis. In context, it would represent a rounding error on a correction that has already run 17% from peak nationally.

The investor who sold after a 15% drop because they were worried about a further 2% would not look back on that decision with satisfaction.

The more consequential question is what the rate environment does to serviceability and cash flow over the next 18 months. A 0.25% OCR increase on floating debt is manageable. A scenario in which the Reserve Bank – consistent with its historical pattern of tightening too little, then too much – takes the OCR closer to Westpac’s 4.25% terminal rate would be a different conversation.

Alexander’s advice to fix for three years is a hedge against exactly that scenario.

The recovery has not been cancelled. Alexander, Davidson, and even the more cautious bank economists broadly agree on that. What changed on 28 February was the timing – summer at the earliest, and possibly well into 2027 before house prices are consistently moving upward again.

Investors who can hold through that period, with well-managed properties generating yield, are positioned to participate in the upturn. Those who exit now are likely to be buying back into a more expensive market.

For a rental appraisal or to discuss how the current environment affects your portfolio, call 0800 GOODWINS or visit goodwins.co.nz.