Are house prices about to fall? The real market shift may be elsewhere

Expectations for New Zealand’s property market have quietly shifted recently.

Several major banks have lowered their house price forecasts almost simultaneously. ANZ expects prices to fall by around 2% this year, while Westpac forecasts a more modest decline of about 1%. BNZ is more cautious: if inflation continues to rise, house prices in purchasing-power terms could return to 2016 levels over the next year or two.

These figures may not look dramatic, but they send a consistent message: the market is no longer moving upwards. Looking a little further ahead, however, suggests the issue may be more than simply stalled house price growth.

A shift that began with oil prices

Oil prices provided the earliest signal of this shift.

Uncertainty stemming from the Middle East quickly fed into energy prices, and energy affects almost every cost. Transport, building materials and everyday expenses are all becoming more expensive.

Inflation is starting to rise again. BNZ expects it could climb above 4% at some point this year and remain above 3% for an extended period.

This also makes the interest rate outlook less clear.

The market had generally expected 2026 to be a year of gradual interest rate cuts and steady recovery. Now, however, some economists are discussing the possibility of rate rises again. Even without increases, rates could stay elevated for longer than previously expected.

For prospective buyers, it is difficult to judge whether now is a suitable time to buy a home.

Sentiment shifts first; prices may take time to follow

This uncertainty has quickly been reflected in market sentiment.

Business confidence has fallen, hiring expectations have weakened, and consumers remain cautious about spending. The property market itself also lacks clear momentum: sales are recovering slowly, but activity is far from brisk.

Interestingly, supply is moving along a different path.

Building consent numbers are rising, house prices in some cities are even edging upwards, and migrants continue to arrive. On the surface, these are all supportive factors. For now, however, that support has not translated into momentum. More often, it is simply preventing a pronounced decline rather than creating scope for further gains.

Buying a home is becoming more affordable, yet the market is quieter

Looking only at prices, the changes in this cycle are not particularly dramatic. Movements of 1% or 2% are unlikely to feel significant. Some analyses even view this adjustment as a ‘healthy correction’.

The financial pressure of buying a home has eased over recent years. As property economist Kelvin Davidson has noted, mortgage payments have fallen from around 60% of income at their peak to close to the long-term average of 40%.

In theory, this should be positive. But the market’s response has been less straightforward. Buyer numbers have not increased noticeably, and sellers are in no hurry to cut prices. More people are choosing to wait and see. Prices have become a little more approachable, but trading has not become more active.

The more substantial impact is being felt in development.

For developers, small house price movements can matter considerably. Whether a project proceeds often depends on expectations of future prices. Once those expectations become unstable, projects that previously stacked up need to be reassessed.

Combined with oil-driven cost pressures, this is squeezing margins on many projects further. Some are slowing down, while others have been put on hold pending developments. These changes can be difficult to detect in the short term. If they persist, however, the resulting contraction in supply often only becomes apparent much later.

The market’s pace has changed

Looking back over this market cycle, prices have barely moved, but sentiment has already changed. People no longer assume house prices will keep rising, and they are no longer rushing to make decisions.

The market has slowed. There is no pronounced decline and no genuine recovery; it looks more like a search for a new equilibrium.

Observations and reflections

In the short term, modest price falls are improving affordability. But if this wait-and-see sentiment lasts too long, its effects could gradually spread from demand to supply.

Slower development and project delays will not immediately show up in prices, but they often reshape the market over the following year or two.

This may be the aspect of the current adjustment that deserves greater attention.

In this environment, would you keep waiting or start entering the market?