NZ Housing Market Forecast: W-Shaped Recovery on the Horizon

The Reserve Bank of New Zealand is forecasting a 'W-shaped' recovery in the housing market by 2027, with house prices expected to rise by 9.2% from Q1 2027 to Q1 2029.

This prediction comes after a prolonged downturn that saw house prices plummet from November 2021 to May 2023 and then increase slightly until 2024 before sagging again. Today's house prices are almost exactly where they were at the previous 'bottom of the market' in 2023.

The OCR (Official Cash Rate) has recently increased by 0.25% to 2.75%, which may seem counterintuitive given the struggling economy, but is actually an attempt to bring it closer to the estimated neutral interest rate of around 3.1%. This would slow down inflation, currently at 4.1%, and reduce the Reserve Bank's foot on the accelerator.

The OCR increase does not automatically mean mortgage rates will skyrocket, with ANZ forecasting a one-year mortgage rate of around 5-5.1% for the next year and a potential fall in two-year rates from 5.5% to 5.2% over the same period.