Reserve Bank officials appeared to take a two-way bet on whether the current stagnation in house price is structural or just part of the normal cyclical pattern.

“Something has definitely changed in the housing market,” RBNZ chief economist Paul Conway said, though he added that the central bank’s forecasts still have house prices increasing “modestly” from about the middle of next year.

Conway told journalists that it’s unusual for New Zealand to have experienced flat house prices through a period in which the central bank has been cutting interest rates.

RBNZ began cutting its official cash rate (OCR) from 5.5% in August 2024 down to as low as 5.25% by October 2025 and held that rate steady until July this year and has since raised the OCR twice to 2.75%.

The Real Estate Institute’s data shows New Zealand house prices were down 0.4% in the year ended July this year and are down 17% from the November 2021 peak.

Assistant governor Karen Silk said that there has been significant work to improve the supply of housing in recent years.

RBNZ’s latest monetary policy statement said flat house prices have continued to weigh on household spending and residential investment, particularly in Auckland and Wellington.

However, the central bank said it expects the favourable conditions for New Zealand exporters should lead to a gradual increase in household spending,

“Job insecurity and falling real house prices may be contributing to precautionary behaviour. Household saving rates have increased and consumption growth remains weak.”

While housing consents have been strong, that hasn’t yet been translated into residential construction.

RBNZ expects employment will grow as the economy recovers and that should feed through into greater consumer confidence and spending.

Higher fuel costs as a result of the war on Iran are reducing real household disposable incomes and dampening house prices and reducing household wealth.

“How household consumption evolves over the medium term is a key uncertainty underlying our economic projections,” the latest monetary policy statement (MPS) said.

The MPS said subdued household consumption reflected weak real income growth, declining real household wealth, subdued population growth and increased saving.

“High inflation has eroded households’ purchasing power. House prices have continued to fall, constraining growth in household wealth, while weak labour market conditions have limited labour income growth and encouraged households to save a larger share of their incomes.”

Annual household consumption growth, which accounts for about 55% of the nation’s economic growth, was 0.8% in the March quarter compared to the 2.3% growth projected in RBNZ’s August 2025 MPS.

The Middle East conflict has meant that rising wholesale interest rates have translated into higher mortgage rates for terms between six months and two years, but term deposit rates for six-month and one-year terms have increased by less.

Mortgage rates for six months to two years have risen by between 20 and 30 basis points  since May but the spread between the two-year mortgage rate and the wholesale two-year swap rate “is broadly unchanged.”

“The average yield on the total stock of mortgage lending is little changed in recent months.”