What's really going on with the housing market?

Sunday, 7 September 2025

ANALYSIS: New Zealanders’ fascination with residential property has manifested in highs, lows and extreme swings over the years, but these days it has entered a contradictory phase.

Over recent weeks there have been reports the property market is going through a full-blown crash, that it’s at a crossroads, and that the long-entrenched housing crisis has been solved.

In a similar vein, some commentators claim there’s an oversupply of housing in certain areas, while others insist the shortage has not abated at all.

Last week ANZ revised its expectation for house price growth this year down to 0%, from its previous forecast of 2.5%. Weakness in the North Island, particularly Auckland, was the driver behind that.

But this week Realestate.co.nz’s latest figures showed the national average asking price inched up 1.7% annually to $862,652 in August, while six regions saw month-on-month and annual asking price growth.

The wealth of competing claims is confusing, and can’t all be true. So what is the reality?

House prices have plummeted. Isn’t that a crash?

House prices tend to be the gauge used to assess the housing market. And there’s no doubt they’ve taken a dive over recent years.

Cotality’s latest data shows the national median was $809,113 in August. That’s down 17.2% from $977,697 at the market peak in January 2022. Auckland and Wellington’s falls have been even bigger, with prices down 22.5% and 25.0% respectively.

Kelvin Davidson, chief property economist at Cotality, says that is a steep downturn so people looking at those figures might think the market is crashing.

“But it’s not. The big falls happened earlier on, and for the past 18 months, the market has been flatlining. We’ve had the downturn, it’s just that it’s not turning up again yet.”

It’s worth noting the national median price is still 16.6% above the pre-Covid (March 2020) median of $693,776, and that at the time that price was considered high.

The housing market is not just about prices …

There are many parts to the housing market, and improving sales activity provides a counterbalance to the price story.

After the market boom sales fell to a low of about 65,000 a year in 2022 and 2023. That’s a stark contrast to the long-term average of about 95,000 sales a year.

But Davidson says sales activity has been picking up for the last couple of years, and this year it looks like sales will be back around the 90,000 level.

“Sales volumes have basically ‘normalised’, and should rise further next year as the lagged effects of lower mortgage rates continue to flow through.

“There has been a build-up of stock on the market, but with sales getting back to ‘normal’, listings are starting to fall. It’s still a buyer’s market, but it won’t be forever.”

Realestate.co.nz’s latest data shows 30,430 homes listed on the market nationwide in August. That’s still an elevated level, but it’s down from the 10-year high of 36,870 listings in March.

Traditionally, another sign of a collapsing market is lots of forced sales. But that’s not happening.

Simplicity chief economist Shamubeel Eaqub says many sellers are still holding out for “ridiculous prices that are too high for the market”, and don’t have to sell if they don’t want to.

The crash talk is ignorant, and not supported by the data, he says.

“If the market has collapsed, why are house prices still eight times the average income? Yes, prices have fallen. But to an affordable level? No.

“In a market crash we would see large numbers of people who can’t afford their mortgages, and lots of mortgagee sales, and we are not seeing that.”

In fact, the latest Centrix data shows mortgage arrears improved to 1.38% in July, with 21,200 home loans past due – 400 fewer than the previous month.

And what about the construction sector downturn?

Home building is another part of the equation, and the construction sector has struggled through a prolonged downturn over the last few years.

Construction activity has slowed to the lowest level since 2019, and company liquidations have increased by 48% from 2024, according to the NZ Chinese Building Industry Association’s annual construction sector report.

Eaqub says the sector has been through a big bust with a sharp fall in consents, and there are very real challenges out there.

“Many in the sector say the conditions are worse than the GFC in terms of distribution and duration. People expected things to have bounced back by now, and they haven’t.”

But there are some glimmers of light at the end of the tunnel for the construction sector.

Annual new home consent numbers have stabilised. There were 33,879 consents issued over the year to July, Stats NZ’s latest figures show, and they’ve been hovering around the 33,000 level for the last year.

That’s down from the record high of 51,015 in the year to May 2022. Davidson says it is a big fall, but in the GFC consents fell to about 13,000. “So if this is the floor it’s not terrible, it’s been a lot worse in the past.”

Lower interest rates will help, lending rules still incentivise new builds, and construction cost increases have flattened off, he says. “There are reasons to think 2026 will be better than 2025.”

What does it all mean for housing supply?

On the one hand, there is an elevated level of homes up for sale nationwide, and some say there’s an oversupply of new builds, particularly in Auckland.

On the other, the pipeline of new builds has dropped off, and there are regular reports about the rising level of homelessness.

In Davidson’s view, people tend to say there are too many new builds overall, but the situation differs by location and property type.

He thinks the market is pretty balanced as house prices and rents are flat, and that suggests a decent amount of supply.

“There have even been some small falls in rents, in Auckland and Wellington, and that’s something we haven’t seen since about 2009.

“The decline in migration means demand has dropped, so the market is in tenants’ favour, even though the level of rents is quite high compared to income.”

For Eaqub, the rental market is not affordable, and in some parts of the country, particularly provincial towns, stock is stretched.

If there was an oversupply of homes, rents and house prices would be cheaper, he says.

“But the supply situation is getting better and will get even better because of the policies around housing supply that are being pursued.

“Will prices and rents become more affordable quickly? No. Because we still don’t have enough homes. It takes time.”

More broadly, there is a shortage of social housing, with 19,297 people currently on the public housing register alone, and shortages in niche areas such as student accommodation.

So what’s the outlook for the housing market then?

Right now, the market is in a holding pattern, and it will be until the impact of lower interest rates flows through.

Once that happens, sentiment will improve, sales will continue to rise, and the market will turn up. But the odds of another boom are low.

The future of the market is a more moderate one, and that’s largely because the supply situation has changed significantly.

Eaqub says the supply policies now in place will lead to a massive step up in the building of homes and more variation in homes.

“Momentum is on the rise, and we should recognise that. I’m confident the next building boom will be bigger than the last.”

But here’s the rub - the market upturn will be about supply, not prices. The era of house prices doubling every 10 years looks to be over.

Davidson says the drive to increase supply, mortgage rates that won’t drop to the lows seen in Covid and debt-to-income ratios will keep a lid on prices.

“They will rise again in future, but the growth rate will be much slower. They won’t be stuck at 3% growth a year forever, it might be more like 5%.”