Australia’s housing market is cooling too: could New Zealand gain a window to catch up?
Over recent years, as New Zealand house prices fell, economic growth faltered and large numbers of people moved to Australia, Australia’s housing market remained strong, widening the gap between the two countries.
Over recent years, as New Zealand house prices fell, economic growth faltered and large numbers of people moved to Australia, Australia’s housing market remained strong, widening the gap between the two countries.
Now, the situation is beginning to change.
Cotality’s latest data shows New Zealand residential property values fell for a fifth consecutive month in August, with high stock levels, economic uncertainty and rising mortgage rates continuing to keep buyers cautious. Meanwhile, BNZ’s latest Eco-Pulse report says Australia’s economy, employment and housing market are also starting to cool.
Does this mean New Zealand finally has a “window to catch up” and narrow the gap with Australia?
The answer may be yes, but what is happening now is a weakening of Australia’s previous lead, rather than a sudden, strong rebound in New Zealand. Rather than New Zealand rapidly catching up with Australia, Australia is moving closer to New Zealand from a stronger position.
New Zealand house prices fall for a fifth consecutive month
According to Cotality’s latest Home Value Index, New Zealand’s median residential property value was NZ$797,944 in August 2026, down 0.36% from the previous month, marking a fifth consecutive monthly decline. Values fell 1.29% over the past three months and 0.97% compared with the same time last year.
Residential property values fell across most of the country, with the larger declines mainly in smaller and medium-sized districts. Horowhenua fell 6.37% year on year, Otorohanga 6.15%, Carterton 5.59%, Tararua 4.83% and Hastings 4.35%.
The major regions showed a clear divergence. Residential property values in Auckland fell 2.58% year on year, Waikato 0.45% and Wellington 2.48%. Bay of Plenty rose 1.59%, Canterbury 3.24% and Otago 2.32%.
Cotality chief property economist Kelvin Davidson considers New Zealand’s current housing market closer to a state of “caution” than “crisis”.
With the economic outlook still uncertain, listings remaining high and mortgage rates starting to rise again, buyers have no reason to rush into making offers. On the other hand, although the labour market has weakened, there has been no widespread unemployment. Many sellers can still afford to wait and are unwilling to cut prices substantially.
The result is a continuing stand-off: buyers take their time choosing, sellers hold to their expectations, sales activity slows and prices keep edging lower.
Davidson noted that New Zealand’s sharpest house price corrections occurred mainly in 2022 and 2023. Although the market has not suffered another major fall since then, it has consistently lacked the momentum for a strong rebound.
Australia’s housing market is also turning
Looking only at New Zealand, the current market still seems short of encouraging signals. But looking across to Australia, the relative positions of the two housing markets are changing.
In its Eco-Pulse report released on 4 September, BNZ said Australia’s economic growth was slowing, its labour market was losing momentum and house prices had retreated from their highs. As local interest rates move further into restrictive territory, this trend could continue for some time.
House prices in Victoria and New South Wales began falling in March this year, with the decline subsequently spreading to other states. Australian house prices nationally are now 3.6% below their recent peak. NAB expects the national peak-to-trough decline in this cycle could reach 7%.
Australia’s economy is also slowing. GDP grew 2.1% year on year in the second quarter, but BNZ expects growth could ease to around 1.5% by the end of this year. Higher interest rates, falling house prices, slower household income growth and reduced fiscal stimulus are all weighing on consumption.
By comparison, after a deep downturn in 2024, New Zealand’s annual economic growth has recovered to around 1.5%. BNZ believes New Zealand’s growth rate could overtake Australia’s by the middle of 2027 if the recovery broadly meets expectations.
However, faster growth does not mean the two economies have reached equal strength. New Zealand is simply recovering from a lower starting point, and the gap that developed over recent years remains.
One is 14% higher; the other is still 15% lower
The positions of the two countries’ house prices also resist simple comparison.
Although Australian house prices nationally have fallen 3.6% from their recent peak, they remain about 14% above their pandemic-era peak. Following a substantial correction, New Zealand house prices are still about 15% below their 2021 peak.
In other words, Australia is retreating from a high after a substantial rise, while New Zealand continues to hover at low levels after a major correction. Prices are falling in both countries, but from different starting points.
BNZ noted that, in New Zealand dollar terms, median residential property prices in New South Wales, Western Australia and Queensland are now significantly higher than in every New Zealand region.
This was uncommon just a few years ago. In 2022, every Australian state except New South Wales had a median residential property price below New Zealand’s national median. Subsequent house price gains in Australia, combined with a weaker New Zealand dollar against the Australian dollar, have reshaped the relationship between the two countries’ house prices.
Australia’s cooling housing market therefore does not mean New Zealand has overtaken it. The gap may be narrowing, but this is currently driven mainly by Australia weakening rather than New Zealand rapidly strengthening.
BNZ noted that New Zealand housing affordability has improved significantly relative to Australia since 2021. Comparing changes in the two countries’ house-price-to-income ratios against a baseline of April 2010, Australia’s index has recently edged above New Zealand’s. However, this reflects changes in those ratios relative to 2010; it does not mean the two countries’ current absolute affordability positions have completely reversed.
New Zealand’s mortgage pressures have yet to emerge fully
Interest rates are crucial to the next phase of both countries’ housing markets.
As of June this year, the average interest rate on existing home loans was about 6.2% in Australia and 4.8% in New Zealand. Australia has a higher proportion of floating-rate loans, so central bank rate increases feed through more quickly to household repayments. Many borrowers are already feeling the pressure of higher rates.
More New Zealand borrowers use fixed-rate loans, so OCR changes take longer to flow through to actual repayment costs. As lower fixed-rate terms expire, more households will refix their mortgages at higher rates.
The Reserve Bank of New Zealand recently raised the OCR by 25 basis points to 2.75%. BNZ expects the Reserve Bank may take a more gradual approach to further increases, eventually lifting the OCR to 3.75% in May next year. This is BNZ’s forecast, not a rate path already determined by the Reserve Bank.
This also explains why buyers are in no hurry to enter the market despite prices being below their peak and properties being plentiful. Lower house prices can reduce the deposit required, but if borrowing costs rise, monthly repayment pressures may not ease alongside them.
People continue moving west, but the pace may slow
Australia’s stronger labour market has long been an important draw for New Zealanders moving west.
Australia’s unemployment rate is currently about 4.4%, below New Zealand’s 5.6%. In the year to June, comparable labour costs grew 3.2% in Australia, against just 2.0% in New Zealand.
Better job opportunities and faster wage growth continue to attract New Zealanders to Australia. In 2024, net migration from New Zealand to Australia was about 32,000 people, the highest in 11 years.
However, BNZ believes the employment gap between the two countries could gradually narrow. New Zealand’s unemployment rate may already be close to its peak for this cycle, while Australia’s could rise to nearly 5% in 2027.
Under these conditions, net migration from New Zealand to Australia could fall to about 20,000 people over the next 12 months. This does not mean New Zealanders will return in large numbers, but it could ease the pressure that continuing population outflows place on local consumption, business recruitment and housing demand.
Has a “window to catch up” really opened?
Across economic growth, employment, house prices, interest rates and migration, the gap between New Zealand and Australia may indeed be entering a period of narrowing.
Australia’s economy is slowing, house prices have retreated from their highs and the labour market is showing signs of cooling. New Zealand’s economy remains weak, but may have passed its most difficult phase.
Yet this “catching up” looks more like a readjustment in relative positions than the start of a rapid rise in New Zealand house prices.
Cotality’s latest data still shows high stock levels, buyers waiting on the sidelines and rising mortgage rates weighing on the market. BNZ expects New Zealand house prices nationally may rise only about 3% between now and the end of 2027. If that forecast proves correct, the recovery ahead is more likely to involve gradual stabilisation than a strong rebound.
For buyers planning to live in their purchase, plentiful listings and limited competition may offer more choice and room to negotiate, but repayment capacity should still be assessed cautiously using higher interest rates. Sellers without an urgent need to sell may need to accept a longer sales period and maintain realistic price expectations.
Australia’s cooling housing market does create a window for New Zealand to narrow the gap. But whether New Zealand’s housing market can emerge from its downturn still depends on local employment stabilising, population outflows slowing, and households retaining enough purchasing power after mortgage rates rise.
As Australia’s housing market retreats from its highs and New Zealand house prices continue hovering at low levels, do you see a special opportunity for New Zealand buyers to enter the market, or a brief calm before higher mortgage costs take full effect?