If rates are falling, why are housing sales 2,000 short of forecasts?

The narrative that doesn’t survive the data

New Zealand’s housing market has now recorded eight consecutive monthly falls in sales volumes against the same months in 2025, and August is shaping up as potentially the weakest month of the year. The annualised sales total, once forecast to hit 100,000, is now tracking at roughly 88,000 to 89,000. That means around 2,000 fewer sales than last year, not the 10,000 more everyone expected once rates started falling.

The lazy explanation is that first-home buyers have gone cold. Cotality’s data demolishes that. First-home buyers hit a record 29% market share in August, and their transaction volumes are still climbing. RBNZ lending figures show first-home buyer mortgage lending reached $1,653 million in April, up from $1,388 million in February. The rookies are doing their bit. The problem is everyone else.

Movers have simply stopped

The trade-up, trade-down chain that generates most of the market’s turnover has gone quiet. The annual running total of mover transactions fell from 25,044 in December to 23,398 by August. Their share of deals in the second quarter was just 25.6%, the lowest since early 2009 at the depths of the GFC.

Cotality chief property economist Kelvin Davidson is blunt about the cause. “People who don’t need to move, if you’re thinking about a trade up or a trade down, it looks like you’re probably continuing to think rather than actually act,” he told RNZ, adding that when unemployment is high and growth is low, movers stay put. “Why would you take on the extra risk of extra debt if you don’t need to?” He expects the caution to persist for another six to nine months.

The investor retreat is the one that matters

Here’s the part that should worry anyone exposed to the property sector. Mortgaged multiple property owners accounted for 22.5% of purchases in the second quarter, down from 24.3% at the end of 2025. That slide has come despite the investment maths getting genuinely better: lower prices, lower rates, and the return of full interest deductibility.

Cotality’s own April analysis found the typical new investor’s weekly shortfall had dropped from $400-$450 at the peak to $150-$200. Investor share briefly recovered to around 24% early in the year, back near the long-run average, then stalled. RBNZ data tells the same story: investor mortgage lending fell to $1,459 million in April, down from $1,888 million in March, and interest-only lending, a proxy for leveraged activity, hit its lowest level in more than a decade at 28% for investors by June.

Tony Alexander’s September mortgage adviser survey captures the mood: a net 27% of advisers reported fewer investors in the market, consistent across three months. Alexander points to “the approaching general election, rising financing costs, static to falling rents, and rising property costs” as the culprits, alongside “reduced capital gain expectations.”

The election is the immediate handbrake

The November 7 election is the specific near-term trigger. Davidson flagged it directly in July: “A potential capital gains tax is a concern for investors. But many are perhaps even more worried about the risk of interest deductibility being phased out again.”

That’s a rational calculation, not panic. The current government restored full deductibility that Labour had removed. A change of government could reverse it. For a leveraged landlord running tight cashflows, that policy risk is a real number to model, and until the result is known, many are simply not committing.

Why lower rates may not be enough

The uncomfortable read for developers and builders is that the traditional recovery lever, cheaper money, may not do the job this cycle. Investors have historically been the primary buyers of new townhouse and apartment stock. With active listings at a decade high of 37,500 in March and existing stock not clearing, new-build feasibility is under strain, while the Cordell Construction Cost Index rose 3.5% annually in the second quarter.

Banks are willing. Confidence is the constraint. The supply shortage that underwrote 20 years of capital gains is no longer the story, with listings at decade highs and buyers holding leverage. For the market to clear, movers need the labour market to improve, likely not before 2027, and investors need election certainty and a stable line on deductibility and CGT. As Davidson puts it, “there is still no obvious catalyst for a strong recovery in the housing market.” Anyone banking on rate cuts to restart development should read the fine print.

Sources

• Who’s slowing down the housing market? (2026-09-17)
• The triple threat keeping NZ property investors on the sideline (2026-07-22)
• First-home buyers are keeping the housing market alive (2026-07-20)
• Mortgage lending growth stalls (2026-08-06)
• First home buyers strong, investors middling, movers still cautious (2026-04-14)
• MORTGAGE ADVISERS SURVEY September 2026 (2026-09)
• Housing market update – March Quarter 2026 (2026-03)
• Monthly Housing Chart Pack – August 2026 (2026-08-27)