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Why 2026 is the year to bet on – the good times are coming
The economy is months away from feeling the full effects of falling interest rates.
Published: 22 Oct 2025 Tony Alexander
The signs are pointing to a stronger year for the economy and the housing market next year. Photo / Fiona Goodall
ANALYSIS: What is a reasonable view to have on the NZ economy for the coming year? Does one repeat the optimism that proved wrong in 2024 and 2025. Or is more caution warranted? The Reserve Bank’s 50-basis point cut to the OCR shows it is choosing caution.
Independent economist Tony Alexander: “Optimistic people will spend more.” Photo / Fiona Goodall
Fair enough. Twice bitten third time shy. But the chances of good economic outcomes next year look a lot stronger this time around for several reasons, not least the lagged effect of lower interest rates.
At the end of 2023 interest rates were still on the up. And at the end of 2024, interest rates were falling but people were over-optimistic in thinking that relief would immediately appear. It can take 18-24 months for a substantial change in monetary policy to take effect.
Now, we are 14 months down the track from the first rate cuts, which tells us that the economy will start to feel the full effects of lower interest rates from early next year, gaining strength as we head into the general election.
What interests me is that we will also be feeling the impact of the jump in farm incomes. When rural incomes surge, the effects ripple out from Southland, then to Otago, and soon after to Canterbury, Taranaki, Manawatu-Wanganui, Bay of Plenty and Waikato. (The boost may take a year to show up in Auckland, and two years to show in Wellington.)
But there are other positive factors also coming into the mix. Upside potential is strong for foreign student numbers (highly relevant to Auckland CBD and Christchurch) as Australia curbs international student numbers to stem housing market tightness.
Infrastructure spending is ramping up – although picking timelines for a boost can be difficult given the long lags between announcing a plan and actually doing it. Prospects for house construction are looking better, at least for standalone housing. Multi-unit developments will take longer to kick into gear given the current over-supply and financier wariness of still over-stretched developers.
The exchange rate has weakened recently and that is good for some extra export receipts generally alongside maybe some extra tourists, which would be useful in helping to make up for the reduction in cruise ship visits to most ports this season.
Of great relevance in all of this is when householders start to feel more confident about their employment and income growth. Optimistic people will spend more. I can see early signs of businesses planning to hire more people from my monthly business survey. But there is zero indication as yet that employment confidence is lifting.
Therefore, for spring I don’t think it is reasonable for retailers to expect many positive surprises. But come summer there is a good chance of things looking better, and after that the factors I have listed above will come into play and should reward those who have made it through the horrid period since the pandemic binge ended at the start of 2022.
Financial Market Update by Opes Partners
29th May 2025
Yesterday, the Reserve Bank cut the OCR by 0.25%. That brings it down to 3.25%.
But buried in their update was something far more interesting…
It’s everything else the Reserve Bank said that was surprising’
Some banks reacted quickly.
Small cuts, sure. But if you’ve got a mortgage, any cut is welcome.
- Westpac dropped the 3-year rate from 5.19% to 4.95% ( 0.24%)
- BNZ’s 1-year rate is now sitting at 4.95% ( 0.04%)
- ANZ’s floating rate fell to 6.49% ( 0.20%)
Westpac getting the scissors out to cut the 3-year rate surprised me.
It’s sharp. I’m keen to see how the other big banks react.
The Reserve Bank thinks interest rates will go even lower
We’re deep into the interest rate cycle now.
Our largest bank (ANZ) has cut its 1-year rate 11 times. That’s over the last 18 months.
It’s gone from 7.39% to 4.99%.
A 0.25% OCR cut doesn’t equal a 0.25% mortgage rate drop anymore.
We’re not in that world anymore.
Markets look forward, not backward. So banks adjust rates based on where they think the OCR is going, not where it is today.
And most of the recent OCR cuts were already priced in.
Compare that to 18 months ago.
Back then, a twinkle in the eye of the Reserve Bank Governor was enough to get the market’s hopes up and interest rates down.
Yesterday’s OCR cut didn’t shock anyone. So … the cut itself doesn’t really move the needle
What will bring interest rates down again? Surprises. Shocks to the market.
And one little surprise (for some) is the Reserve Bank’s new OCR forecast.
Their modelling now suggests that the OCR might bottom out at 2.75% rather than the 3% they thought just 90 days ago.
That might help interest rates come down
Why could the OCR get cut even more?
The economy is … well, kinda stuck.
- Businesses are struggling.
- Consumers are holding back.
- Global growth is flatlining.
When the economy’s running slow … businesses can’t raise their prices. So inflation starts to fall.
3 months ago, the Reserve Bank thought GDP would go up 0.6% in the June quarter. Now? They’re thinking just 0.3%.
And for the next (September) quarter? They previously forecast 0.6% again. Now, that’s been revised down to a weak 0.1%.
They’re also thinking that inflation will be a tad lower. They think that imported inflation will be a lot lower than previously thought.
That means that interest rates can fall a little further.
But what about house prices?
Finally, the Reserve Bank had something to say about house prices, too. 
Now, can we rely on the Reserve Bank’s house price forecast? … No. House prices are notoriously hard to forecast.
But for what it’s worth, they expect prices to rise 4.9% over the next 12 months.
That doesn’t mean it will happen. That’s just that they’re currently modelling.
It’s been a hard few years for property investors. Interest rates went up, and house prices came down.
This OCR announcement doesn’t fix all those problems.
It won’t spark a boom. But for the first time in two years, investors have the wind at their backs.
By Andrew Nicol
Managing Director – Opes Partners
BNZ foresees 7% rise in NZ house prices
By Mina Martin 27 Mar 2025
Market stabilises as mortgage rates adjust
BNZ chief economist Mike Jones (pictured) has confirmed the bank’s view of a 7% increase in national house prices, bolstered by economic recovery and adjusted mortgage rates.
“Amid the many moving parts, the overall vibe of NZ’s housing market seems to be tilting in the direction of our long-held view… We continue to pick around a 7% lift in national house prices this year,” Jones said.
House price predictions 2025
Where are house prices going?
Explore our house price predictions for 2025 and understand the future market trends. This guide offers an analysis on where house prices are headed, helping you make informed decisions.
Property investors and homeowners always want to know: “Where are house prices going? What are the banks’ house price predictions?”
No one knows with certainty where house prices will go. But getting a range of opinions can give us a sense of what might happen.
That’s why we look at all the big banks’ forecasts here at Opes Partners and pull them together in one place. That way, you can get a sense of what may happen to house prices.
The median prediction is that house prices will increase by 6.80% in the year to December 2025. But all the banks have different ideas.
This table shows each bank’s prediction between December 2024 and December 2025.
Let’s dig into the details of each bank’s prediction.
More from Opes:
- What’s happening with NZ house prices right now? (Article)
- Where are interest rates heading? Interest rate predictions (Article)
- Can I afford an investment property in 2024? (Article)
Reserve Bank house price predictions
The Reserve Bank puts out its house price forecasts every 3 months. This happens when they release their Monetary Policy Statement.
Here is the latest forecast they released in February 2024.
The Reserve Bank predicts that house prices will go up 3.79% in the year to December 2025.
- Will house prices go up in 2025 in NZ?
- What is the forecast for house prices in NZ?
- What is the house price forecast for BNZ?
ANZ house price predictions
ANZ frequently puts out new house price predictions. They update these often and summarise them in their monthly report – Property Focus.
ANZ predicts that house prices will go up 6.00% in the year to December 2025.
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