The Reserve Bank of New Zealand’s latest housing forecasts explained: could Auckland house prices be first to take off? Is the market trough really behind us?

The Reserve Bank of New Zealand revised its housing market forecasts in last Wednesday’s Monetary Policy Statement, saying house prices could rise much faster over the next few years than it previously predicted. It expected the OCR to remain at its current level for longer than previously forecast, with rate cuts perhaps not arriving until mid-2025.
The Reserve Bank now expects house prices to rise 3.2% between September this year and September next year, and 9.5% over the two years to the end of 2025, far above its previous forecast of 0.4%. Reserve Bank of New Zealand Governor Adrian Orr said house prices had stabilised in recent months. Although the outlook was “highly uncertain”, prices had clearly bottomed out much earlier than projected in its May forecast.
Reserve Bank of New Zealand Governor Adrian Orr’s team was surprised by the strength of house prices
Infometrics chief executive Brad Olsen said the Reserve Bank was very confident that the low point for house prices had passed, more than a year earlier than expected. He noted that house prices had clearly shifted. In terms of affordability, if mortgage rates remained unchanged but house prices suddenly rose, affordability would worsen. This meant the Reserve Bank was “fully aware” that another rate increase might be needed, although this was not its current expectation for the market.

Olsen therefore interpreted the Reserve Bank’s forecasts as indicating that another rate rise was unlikely, but if house prices grew too quickly, the bank could take the action needed to stabilise them, while inflation would be unlikely to fall as expected.

In other words, homebuyers could face the combined pressures of higher house prices, high interest rates and high living costs for some time.

CoreLogic chief property economist Kelvin Davidson said he agreed with the Reserve Bank that, although the economic downturn had largely ended, significant barriers to an upturn remained. He expected house prices in 2026 to remain below their 2021 peak. Davidson explained that he was cautious about the next phase of the property market because mortgage borrowers’ finances were already stretched, lending rates would not fall for at least another six months, and debt-to-income limits could also be introduced soon.
In fact, the major banks are still raising interest rates. After ASB increased most of its fixed rates, ANZ announced yesterday that it too was raising some fixed mortgage rates. Increases for fixed terms shorter than two years were relatively small, while rates for terms of two years or longer rose by 20 basis points. The chart below shows the major banks’ current fixed rates.

Source: www.interest.co.nz

ANZ senior economist Miles Workman said the Reserve Bank’s latest forecasts could affect mortgage rates. The OCR faced upward pressure in the short term, but a reduction of 50 basis points was expected by November 2024. Kiwibank economists had previously expected rate cuts as early as February, but had now revised that forecast to May. Meanwhile, Westpac forecast house prices would rise 8% next year. Independent economist Tony Alexander was more optimistic, predicting an increase of 10%.

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Tony Alexander said they regularly spoke with Kiwibank mobile mortgage managers and mortgage advisers nationwide. Their research found a clear improvement in enthusiasm for buying homes, with purchasing activity also accelerating, particularly unusual for a property market in winter. He believed the market’s real test would come in spring as the weather warmed, with changes in mortgage lending and supply and demand the main drivers of rising house prices.
Alexander said mortgage rates had already risen considerably and were widely thought to have peaked. This appeared to reassure homebuyers: if they could afford today’s high rates, they would face less pressure if rates started falling next year.
He expected Auckland was very likely to be the first region to record rising house prices as New Zealand’s wider property market recovered. This was because Auckland had received around 95% of new migrants. Net migration had grown substantially over the past year, with most of that increase feeding into the Auckland market and boosting demand for housing in the region. Although affordability in Auckland remained somewhat constrained, it had improved compared with two years earlier. Wellington house prices could also recover earlier, as the region had experienced the largest price falls over the past few years.
Kelvin Davidson shared this view: “We have already seen house price indices rise in Papakura, Manukau, the North Shore, Upper Hutt, Porirua and Wellington City in July. However, this does not necessarily mean the rebound in Wellington or Auckland house prices will be stronger. After all, properties in these markets are not ‘cheap’, and borrowers face the same pressure from high mortgage rates wherever they live.”
ANZ senior economist Miles Workman
Miles Workman expected price growth to vary between areas within these cities. Overall, Auckland’s property market had been most affected by new migrants, with prices rising in 4 of the past 5 months. As for other factors driving house prices, he believed the Reserve Bank’s recent changes relating to the CCCFA and its easing of LVR restrictions had both helped support the nationwide housing market recovery.