The Reserve Bank of New Zealand’s decision to hold the Official Cash Rate at 2.25% reflects an economy that remains soft, but increasingly stable, with the property market showing early signs of renewed momentum.
LJ Hooker Head of Research Mathew Tiller said inflation remains the key watchpoint for policymakers, even as broader economic conditions begin to settle.
“New Zealand’s economy is still under pressure, but the data suggests it’s starting to feel more stable,” Tiller said.
“Annual inflation lifted to 3.1% in the December 2025 quarter, which keeps the Reserve Bank firmly on alert, while the unemployment rate has edged up to 5.4%, signalling a cooling labour market.”
He said wage pressures appeared to be easing, with the Labour Cost Index rising 2.0% over the year to December, helping reduce some of the inflationary heat.
“Looking ahead, the economic outlook points to gradual improvement rather than a sharp turnaround,” Tiller said.
“Inflation expectations remain elevated, with the RBNZ’s Survey of Expectations showing one-year ahead inflation at 2.59% and two-year expectations at 2.37%, both still above the 2% midpoint.”
“Taking all this into consideration, a hold to interest rates in February is a sensible call as the RBNZ wants to pull inflation back to its target range. Looking forward, the risk profile for 2026 has shifted. If inflation stays sticky and expectations remain high, the next move looks more likely to be up than down.”
On the property market, price growth remains subdued, but activity levels are improving as buyers adjust to lower mortgage rates.
According to REINZ data, national house prices were down 0.7% year on year in January 2026, with Auckland values 2.6% lower, while prices outside Auckland edged up 0.4%. Cotality’s Home Value Index shows national values fell 1.0% over 2025 and remain 17.6% below the early 2022 peak.
LJ Hooker Head of Operations NZ Allaine Burkett said flat pricing conditions were being offset by a gradual lift in sales activity across the country.
“What we’re seeing on the ground is a market that’s slowlywaking up,” Burkett said.
“Buyer confidence isn’t rushing back, but it is improving, particularly as mortgage rates remain lower than they were a year ago.”
Cotality estimates around 90,000 property sales took place in 2025, with volumes expected to lift toward 100,000 in 2026. At the same time, listings are tightening in several regions, reducing buyer choice.
“This tightening in stock is starting to show through inparts of the country,” Burkett said.
“In centres like Rotorua and Christchurch, listings are materially lower than this time last year, which is helping shift the balance slightly toward sellers in those markets.”
Rents, however, remain the softer side of the market. Cotality data referencing MBIE bond information shows rents were down 1.2% year on year in the three months to November, keeping conditions favourable for tenants.
“Overall, the direction of travel is positive, but it’s still a slow grind rather than a quick rebound,” Burkett said.
“Lower interest rates and improving sales volumes should provide support, but the Reserve Bank’s cautious stance means confidence is likely to rebuild gradually rather than all at once.”