NZ HOUSING WARNING: PRICES STILL UNDER PRESSURE AFTER YEARS OF LOSSES

New Zealand house prices have fallen sharply from their pandemic peak, but ANZ’s latest assessment offers little comfort to owners waiting for a strong rebound: prices remain above some measures of fair value, ownership costs are elevated and further weakness is possible.

ANZ economists believe most of the housing bubble has deflated. That is a significant improvement in the market’s underlying position.

But “mostly deflated” does not mean the downturn is over, nor does it establish that property is about to deliver another period of substantial capital gains.

According to Susan Edmunds’ October 21 reporting for RNZ, ANZ senior economist Matthew Galt says house prices could continue moving sideways or slightly lower while they adjust towards economic fundamentals.

For households relying on rising property values to rebuild equity or support retirement plans, that is a serious message.

House prices down 16% — and more than 30% after inflation

The scale of the adjustment is substantial.

RNZ reports ANZ’s assessment that average nationwide house prices are approximately 16% below their 2021 peak, with the decline exceeding 30% after adjusting for inflation.

Those figures measure different things:

• The nominal decline describes the change in dollar prices.
• The inflation-adjusted decline describes the change in purchasing power.

An inflation-adjusted fall of more than 30% does not mean every homeowner could sell for 30% less than in 2021. Individual properties and regions have also performed differently.

Nevertheless, the figures show how much of the pandemic-era surge has unwound.

Property Noise’s earlier coverage of falling household wealth and declining land values examined the wider balance-sheet consequences of a softer property market. That separate release reinforces why the effects extend beyond people currently selling.

The affordability correction is still incomplete

ANZ examined several measures to assess whether house prices have returned to more sustainable levels.

One is the relationship between house prices and household incomes.

That ratio climbed from approximately four times household income before 2002 to almost nine times in 2021. It has since fallen to around six times, reflecting lower house prices and rising incomes.

That is a considerable adjustment. It is also some distance from the affordability ratios familiar before the 2000s.

ANZ doubts the ratio will return fully to those earlier levels, pointing to structural differences including interest rates, population pressures, credit availability and changes in housing quality.

The uncomfortable implication is that a large correction can occur without making housing comfortably affordable.

Buying still carries a substantial cost burden

One of the more sobering findings concerns the cost of ownership relative to renting.

Galt says ownership costs remain elevated compared with rents, and that this is unlikely to change in the next few years.

That weakens the immediate financial incentive to buy and leaves prices under pressure.

For prospective owner-occupiers, the decision includes security, stability and the freedom to make a home their own. But those benefits do not remove the financial burden.

For investors, the same comparison raises questions about whether rental income adequately supports the costs of holding a property.

Lower purchase prices alone do not establish an attractive investment return.

ANZ says the Reserve Bank’s measure still shows prices above its sustainable range

RNZ reports that the Reserve Bank’s September assessment placed house prices slightly above its estimated sustainable range.

That framework considers the long-term benefits and costs of ownership, including rents, expected inflation, interest rates, council rates and maintenance.

However, Galt acknowledges that the estimate is sensitive to assumptions about the neutral interest rate — an uncertain benchmark for a rate that neither stimulates nor restrains the economy.

The sustainable range is therefore an estimate, rather than a precise price target.

Even with that qualification, the message deserves attention: a substantial fall from the peak does not automatically mean prices have moved below fundamentals.

Higher long-term interest rates remain a risk

ANZ’s analysis highlights the importance of long-term borrowing expectations.

If interest rates settle below the levels ANZ and financial markets expect, current property prices could prove more sustainable.

If long-term rates move higher than expected, prices could face additional downward pressure.

That leaves homeowners and investors exposed to an assumption that helped support earlier valuations: the expectation that borrowing would remain cheap for a long time.

ANZ expects interest rates to remain higher than during the 2010s. Its assessment therefore gives little support to treating the exceptionally low-rate environment of the past as the basis for today’s decisions.

Construction costs could limit further falls — but do not guarantee a rebound

ANZ also identifies a factor that may cushion the market.

House prices have moved closer to construction costs. The reported house-price-to-build-cost ratio was 1.54 in June 2025, compared with 2.1 in 2021.

That observation is dated: Galt notes the published estimate is more than a year old and believes the ratio has probably declined further.

As the financial incentive to build weakens, construction activity can retreat. Over time, reduced supply growth may help support prices.

That is ANZ’s argument for limited additional downside. It does not identify an immediate floor beneath every property or promise a quick recovery.

A long wait could replace the hoped-for boom

Galt suggests that once prices reach fundamentals, they could rise over the long term alongside household incomes and construction costs — potentially around 4% annually, with substantial cycles around that trend.

This is a conditional long-term assessment, not a forecast of 4% growth next year or a guaranteed return.

For owners waiting to recover earlier valuations, the distinction matters.

Property Noise has previously examined how New Zealand’s housing market has changed despite years of relatively flat asking prices. Asking prices and ANZ’s price measures are different, but both challenge assumptions that time alone will produce a rapid rebound.

Property Noise’s view: the correction has consequences

ANZ’s assessment contains a meaningful positive: much of the excess has been removed without financial-system instability, and the bank sees limits to further downside.

That should remain part of the story.

But for households, an orderly correction can still be painful. Lower values can reduce equity, complicate a sale or delay plans that depended on an earlier valuation.

The serious warning is that the market may require more time to adjust, even after years of losses.

A housing bubble being mostly deflated is progress towards sustainability. For owners still facing high costs and waiting for prices to recover, it is not yet a financial recovery.

Source attribution: Based on Susan Edmunds’ reporting for RNZ, published October 21, 2026, outlining ANZ’s analysis and comments from senior economist Matthew Galt. Interpretation and commentary by Property Noise.