In the column I wrote three months ago I concluded with a comment that the feed-through of a strengthening economy would likely start impacting real estate markets in Northland, Auckland, and Bay of Plenty towards the end of this year. That still looks like a valid view to have even though most indicators for activity and prices in these three regions remain quite subdued.

“Subdued” is a polite way of saying prices falling. Over the past three months average house prices compared with a year ago for Northland, Auckland, and Bay of Plenty respectively have been down 0.1%, 2.1%, and up 0.5%. 

Why do price rises lie ahead for more than just the Bay of Plenty? Because we can already see on the ground what happens when economic activity picks up. In Southland where the economy has been greatly boosted by high farm incomes average prices have risen by 7.1% this past year.

In Canterbury where the rural upturn is also in play prices have climbed 3.7%. Dunedin City is up 2.1%, and Queenstown Lakes District is up 5.1% assisted by strong population growth.

One of the strongest characteristics of the NZ economy is that a change in farm fortunes takes some time to make its way through the economy. The process has already started and that is a key reason why higher prices and better sales levels lie ahead for Northland and Auckland. 

For Auckland however there are some other reasons for expecting stronger times ahead. The opening of the City Rail Link and strong growth in foreign student numbers will greatly benefit the CBD and its immediate environs. Various pieces of research including from London’s Financial Times are showing that affordability has firmly improved in Auckland and this is one of the factors which has been helping the Christchurch market over the past three years. 

The general election will be over in a couple of months and hopefully that can bring some policy stability which will benefit the economy via improved business willingness to hire staff and undertake investment. What exactly residential property investors do will depend on whether the current government is returned or Labour regain the majority with small parties and new rules negatively impacting investors come into play. 

So, for now it seems fair to say that things are still quite uncertain, and we haven’t even canvassed factors such as geopolitical developments offshore, the impacts on inflation versus productivity of AI, and what exactly happens with interest rates.

It appears reasonable to expect that the Reserve Bank will have taken the official cash rate to 3% by the end of this year from the 2.25% level which prevailed from November 2025 to July this year. After that the common pick is that only another 0.25% - 0.5% worth of rises will be needed to keep inflation in check.

History however tells us that every time at the start of a monetary policy tightening cycle we underestimate how high interest rates will eventually need to go. So, borrowers perhaps should consider a cash rate at 4% and how that will add another 1% or so to floating and very short-term fixed interest rates.

This upside risk for interest rates alongside high numbers of concerns being issued for new dwellings to be built tells us that through the entirety of this economic/inflation/housing cycle the extent of average price gains will be limited.

The message to buyers is that the risk of prices falling after purchasing is slowly diminishing and commencement of a new long-term average price gain less than the old rise near 7% will soon commence – in mild fashion. 

For sellers the message is one of still having to be realistic when setting a sales price not just now but for the entirety of this cycle. FOMO on the part of buyers has been running at low levels for four and a half years now and when it starts rising again a return to feelings of frenzy which propelled property prices skyward over 2020-21 is highly unlikely. 

Tony Alexander is a economics speaker and writer in New Zealand. For almost 25 years, he was the Chief Economist at BNZ.