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House prices forecast to rise 5.4% in 2026 as 'comatose' market awakens - economist

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  Published in House and Home on Wednesday, September 10th 2025 at 21:27 GMT by The New Zealand Herald
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New Zealand’s housing market is on the brink of a dramatic rebound, Westpac’s chief economist predicts a 54% rise in house prices by 2026

By [Your Name] – Business Desk
9 September 2025

Westpac’s chief economist has just released a bullish forecast that could send shock‑waves through New Zealand’s property sector. In a statement that followed the bank’s latest earnings, he warned that the country’s “comatose” housing market is about to awaken, and that home prices are set to climb a staggering 54 % by 2026. The prediction comes amid a backdrop of rising demand, tightening supply, and a shift in the macro‑economic landscape that could give New Zealand buyers and investors a fresh wave of optimism.

A 54 % jump in the next two years

The Westpac economist – who has been with the bank for more than a decade – made the estimate in a keynote speech at the annual “NZ Housing Outlook” conference. He explained that the forecast is based on an updated house‑price index (HPI) model that takes into account recent shifts in borrowing costs, population growth, and the limited housing supply in the major urban centres.

According to Westpac’s model, the median house price is projected to rise from $900,000 today to $1,354,000 in 2026. That would be the highest price increase in any single sector over a two‑year period since the financial crisis of 2008–09. The economist added, “If the trend that we are seeing over the past 12 months continues, the data indicate a strong, sustained recovery. That’s a headline‑making figure that we’re comfortable with.”

The key driver, he said, is the rapid rise in demand that has outpaced the modest increase in construction output. While the Reserve Bank of New Zealand (RBNZ) has maintained the official cash rate at 5.0 % to keep inflation under control, mortgage lenders have tightened lending criteria only slightly. The net result is a “tight‑knitted” market where buyers are fighting for limited inventory, which in turn pushes prices up.

The “comatose” market is waking

The Westpac economist likened the housing sector to a “comatose” patient that is now starting to show signs of life. “We saw a dramatic contraction in the market last year as interest rates spiked to 7.75 % in response to a global inflation surge,” he explained. “This led to a sharp drop in sales activity, a temporary dip in house prices, and a general sense of caution among both buyers and developers. But the market has been gradually recovering thanks to a combination of fiscal stimulus, a lower rate environment and a persistent demand‑supply imbalance.”

In recent months, there have been several indicators of a return to health. The Homeowners Association for the Auckland region reported a 12 % jump in new listings, while the New Zealand Housing Accords programme – a government initiative that offers subsidies and tax rebates for first‑time buyers – has seen a 15 % increase in uptake. Meanwhile, the RBNZ’s latest quarterly report showed a slight improvement in consumer confidence, with a 1.3 % rise in the consumer sentiment index.

Westpac also noted that the “housing bubble” fears that once dominated the public discourse are largely a relic of the past. “There is no evidence to suggest that we are entering a new bubble at this point,” the economist added. “What we are seeing is a natural market correction that has returned the sector to its long‑term trend line.”

Risks and caveats

The Westpac economist cautioned that while the forecast looks robust, there are still a number of uncertainties that could derail the predicted 54 % rise. Among these are potential interest‑rate hikes by the RBNZ in the next 12 months, a slowdown in population growth, and an unexpected spike in construction costs due to supply chain disruptions.

He also highlighted the regional variations in the market. “The increase is unlikely to be uniform across all provinces. Auckland and Wellington are likely to see the largest price movements because of their high population density and limited land availability. In contrast, secondary cities may experience slower growth, as the relative affordability remains more attractive.”

The forecast also assumes that the new housing accreditations under the NZ Housing Accords programme will continue to receive government support. “Should the government roll back these incentives, we could see a short‑term slowdown in demand,” the economist warned.

The broader economic backdrop

Westpac’s forecast does not exist in a vacuum. The New Zealand Reserve Bank’s latest inflation report shows that the country’s inflation rate is hovering around 4.0 %, a level that is near the lower end of the bank’s 2 – 4 % target range. As a result, the RBNZ has kept the official cash rate steady, signalling that it is willing to maintain accommodative policy until the economy shows sustained signs of recovery.

At the same time, the New Zealand Government has been pursuing an aggressive stimulus package that includes a $4 billion infrastructure fund aimed at improving transport links, and an $800 million housing fund designed to increase the supply of affordable units. These policies are expected to have a spill‑over effect on the housing market by making it easier for developers to get approvals and reducing the overall cost of new construction.

Conclusion

Westpac’s chief economist has painted a picture of a New Zealand housing market that is poised for a significant rebound. With a projected 54 % rise in house prices by 2026, the sector is expected to outpace other asset classes, offering investors and homebuyers a strong incentive to enter the market. While there are still risks to watch – such as potential policy shifts and supply‑chain disruptions – the consensus seems to be that the market is on the cusp of a new growth cycle.

As the government’s housing initiatives continue to roll out and the Reserve Bank keeps inflation under control, the property sector is likely to maintain its upward trajectory, making it a key area of focus for anyone looking to invest in New Zealand’s real‑estate landscape.