Tony’s View: Recovery delayed, not derailed
Back in November last year there was a generalised though mild upswing in housing markets underway in Auckland, Northland, and Bay of Plenty courtesy of low interest rates and firm expectations for improvement in the economy and the labour market. In the monthly survey of real estate agents for instance which I've been running for six years, only 2% in November said that buyers were worried about interest rates. That reading now stands at 52%.
Even before the US attacks on Iran from February 28 and soaring global worries about inflation and borrowing costs, some optimism about interest rates here had started to disappear. This was because wholesale borrowing costs were rising from their low points of October and people like myself were discussing tightening monetary policy because of the economy's upturn.
In fact, by the time the war started the often popular two year fixed mortgage rate had already risen from 4.45% to 4.69%. It now commonly sits near 5.19%.
Worries about employment have also risen from a low of just 33% of agents noting it in January to 51% now.
The upshot of rising interest rates and some return of economic growth and employment worries has been a fall in the proportion of agents saying FOMO (fear of missing out) is being displayed by buyers to 10% from 26% in November.
Do these developments mean that no housing recovery will occur this economic cycle? No. Like a lot of other things the period of strength has largely been kicked out in time by up to a year because of the widespread disturbance and uncertainty created by the Middle East war.
There are some key factors which will assist our economy and housing market as we get towards the latter part of 2026. Chief amongst these is an upturn in rural incomes – especially in the dairy, red meat, and (surprisingly) wool sectors. Tourism growth is strong and of high relevance to Auckland CBD is the continuing good growth in foreign student numbers as Australia pulls away the welcome mat because of rental market pressures over there.
Other good factors supporting a growth upturn are rising spending on infrastructure, the feed-through into the cities of Fonterra’s $3.2bn capital repayment to its suppliers, and improving net migration. The annual net migration flow has lifted from just 11,000 in the middle of last year to over 24,000 now with an annualised underlying pace looking to be over 40,000.
What these factors add up to is this. There will be constraint on upper North Island housing markets for this year and next from tightening monetary policy as the Reserve Bank reacts to having cut its interest rate too far last year, underestimated inflation, and is now having to battle the risk of ongoing inflation effects from the war.
But already despite the war worries we can see a recovery starting in business employment intentions in the ANZ’s monthly Business Outlook survey. In the recent Budget Treasury predicted that after growing near 1.2% in the year to June 2026 almost completed, our economy will grow 2.3% the year to mid-2027 then 3.2% after that. Those numbers seem reasonable given the upturn in our export sector.
In fact, there is something important to consider of relevance to our export, economic, and therefore housing prospects. Overseas concerns about the cost and availability of both fertilizer and fuel are causing cutbacks in food production. Demand for what we predominantly export is strong and set to grow further with additional assistance from ageing Western populations seeking to consume more protein – something we excel in producing.
The underlying fundamentals for New Zealand are actually better than they have been for a very long period of time. It’s just going to take a while for the effects to start feeding through in strong measure to the cities and newly boosting our housing markets. As noted, my pick of that timing is from late this year.
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