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Economist Predicts NZ Housing Market Recovery Won't Arrive Until 2026

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  Published in House and Home on Monday, January 5th 2026 at 17:42 GMT by rnz

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A Long Road Ahead: Economist Predicts Housing Market Confidence Won’t Return Until 2026

New Zealand's beleaguered housing market is likely to remain subdued for the foreseeable future, with any significant rebound in buyer confidence not expected until 2026, according to economist Tony Grant. The RNZ article highlights Grant’s assessment, presented during a recent Westpac webinar, and delves into the complex factors contributing to this prolonged period of uncertainty and correction following years of rapid price growth. While interest rate cuts are anticipated, they won't be enough on their own to spark a widespread return to the frenzy seen in 2021.

The core of Grant’s prediction rests on the belief that current anxieties surrounding affordability, debt levels, and overall economic stability need considerable time to dissipate before potential buyers feel comfortable re-entering the market with enthusiasm. He argues that simply lowering interest rates will not automatically translate into increased demand; instead, it's about restoring faith in the long-term value of homeownership.

The Current Landscape: A Perfect Storm of Challenges

New Zealand’s housing market is currently facing a confluence of negative pressures. The rapid ascent during the pandemic, fueled by low interest rates and government support measures like the First Home Grant (discussed further on the Westpac website), created an unsustainable bubble. When the Reserve Bank began aggressively raising interest rates in 2022 to combat inflation – peaking at 5.5% - it dramatically cooled the market. This rate hike, coupled with tighter lending conditions and a broader economic slowdown, has significantly eroded buyer confidence.

The article emphasizes that affordability remains a major hurdle. While house prices have fallen from their peaks, they remain high relative to incomes. The "mortgage stress test" – requiring potential borrowers to demonstrate they can service repayments at higher interest rates than currently offered – further restricts access to finance. This is particularly challenging for first-home buyers who were heavily targeted during the boom years.

Furthermore, economic uncertainty plays a crucial role. Concerns about recession, unemployment and global instability all contribute to a cautious mindset amongst potential homebuyers. People are prioritizing financial security over speculative investments like property. The RNZ article points out that consumer sentiment remains low, reflecting this pervasive anxiety. Linked content from Stats NZ shows consistent negative readings on consumer confidence indices, reinforcing Grant’s assessment.

Interest Rate Cuts: A Necessary But Insufficient Condition

While the Reserve Bank of New Zealand (RBNZ) is expected to begin cutting interest rates in late 2024 or early 2025, Grant believes these reductions will have a limited impact on reviving the market immediately. He suggests that while lower rates might ease pressure on existing mortgage holders and make borrowing slightly more accessible, they won’t be enough to overcome the underlying psychological barriers preventing people from buying.

The article draws parallels with previous housing cycles, noting that recovery periods often follow a pattern of gradual improvement rather than sudden surges. Grant highlights that it takes time for households to adjust their expectations and rebuild confidence after experiencing significant financial stress or uncertainty. He suggests that even with rate cuts, the market will likely remain sluggish until there's a broader sense of economic stability and job security.

The 2026 Prediction: A Timeline for Rebuilding Trust

Grant’s prediction of 2026 as the year confidence begins to return is based on several assumptions. It assumes that inflation continues to moderate, allowing the RBNZ to progressively lower interest rates without triggering further economic instability. It also anticipates a gradual improvement in consumer sentiment and increased job security. Crucially, it requires a period of price stabilization – or even modest declines – to allow affordability to improve significantly.

The article notes that 2026 isn't necessarily about prices returning to previous highs; rather, it’s about restoring the belief that buying a home is a sound long-term investment. This involves addressing the fundamental issues driving market volatility and creating an environment where people feel comfortable committing to significant mortgage debt.

Government Policies & Their Impact

The RNZ article also briefly touches on the impact of government policies. The First Home Grant, while initially intended to help first-home buyers, arguably contributed to the boom by increasing demand. Changes to these policies and ongoing debates about taxation (particularly regarding rental properties) continue to influence investor sentiment and market dynamics. While a shift in immigration patterns could also play a role – as discussed in related reporting - it’s difficult to predict with certainty how this will impact housing supply and demand.

Conclusion: Patience is Key

In conclusion, Tony Grant’s prediction of 2026 marking the beginning of a housing market confidence recovery underscores the complexity of the situation facing New Zealand. While interest rate cuts are expected, they won't be a magic bullet. Rebuilding trust requires addressing affordability concerns, fostering economic stability, and allowing for a period of price stabilization. For potential buyers and sellers alike, patience will be key as the housing market navigates its way through this challenging period. The long road to recovery is likely to be gradual, with 2026 representing not an explosion of activity, but rather the tentative first steps towards renewed confidence in New Zealand’s housing sector.

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