House buyers dry up ahead of interest rate rises

The key numbers...

Activity in the housing market weakened significantly in May, with sales volumes down 7.0% from April to their lowest level since January 2025 (seasonally adjusted).

The 13% fall in sales compared with May last year was the largest annual drop since the Matariki-affected June 2024 result and, before that, March 2023.

For the first time since the end of 2022, no regions recorded higher sales volumes than a year earlier (sales in Hawke’s Bay were unchanged from May 2025). The biggest annual falls were in Gisborne (-48%), Northland (-27%), and Nelson (-25%). The mid-lower South Island continues to perform better than the rest of the country, with annual falls of 4.3% and 8.4% respectively for Canterbury and Southland.

The stock of homes for sale rose another 1.3% and has now risen 2.8% since February (both figures seasonally adjusted). Stock numbers have now surpassed their October 2025 peak and are at an 11-year high.

House prices edged up 0.2% from April (seasonally adjusted), but they were still 0.6% lower than a year ago. Southland (5.8%), Canterbury (3.0%), and Otago (2.8%) are the regions with the strongest house price growth.

...and our reaction

It is now safe to say that the Iran War, its negative effects on consumer confidence, and the prospect of rising mortgage rates are weighing on housing market activity.

Financial markets have priced in three increases to the official cash rate before the end of 2026, a track that was confirmed by the Reserve Bank at its Monetary Policy Statement last month. Although one-year and 18-month fixed mortgage rates are currently still below 5%, they are likely to be above 5% by August this year and over 5.5% by early 2027.

House prices typically take six months to reflect weaker buyer demand and increased stock levels. With sales activity weakening and an increasing number of properties to choose from, prices look likely to come under renewed downward pressure throughout the rest of 2026.