Economists still tip a December cash rate hike as inflation climbs
Westpac has downgraded its 2026 house price forecast and now predicts national values will fall 1.4% this year, rather than rise 0.6%.
“House prices have not stabilised as expected in recent months,” Westpac NZ chief economist Kelly Eckhold (pictured) wrote in the bank’s October 2026 forecast update.
The revised forecast is consistent with values falling 0.5% in the September quarter and 0.8% in the December quarter. The latest data supports the downgrade. Cotality’s Home Value Index fell 0.3% in September, its sixth consecutive monthly decline.
Selling times stretch out
The median time to sell a home has lengthened to 48 days, and sales volumes continue to weaken. That has undercut the bank’s expectation that the market would steady in the second half of the year. Values have drifted lower nationally, even though parts of the South Island, which are more exposed to the strong export sector, have held up better.
The bank sees that regional gap continuing. Incomes in regions that rely on tourism and agriculture should stay firm, but homeowners in the major North Island cities may have to wait some time before their property values rise. The still-weak labour market and higher mortgage rates also point to a soft market.
Eckhold also warned: “Risks remain tilted towards another weak year in 2027.” That would especially be the case, he said, if the outcome of the general election led to higher taxes on capital gains from investor housing.
Fuel pushes inflation higher
Petrol prices hit a record in early October, with 91 unleaded averaging $3.53 a litre after rising around 50 cents in a month. Higher global fuel prices and a fall of more than 4% in the New Zealand dollar since early September are behind the increase. The bank sees high fuel costs and the soft housing market dampening consumer spending in the lead-up to Christmas.
Westpac still expects annual inflation to ease to 3.7% in the September quarter, but now sees it rising to a three-year high of 4.2% in the December quarter.
Cash rate path unchanged
Despite the higher inflation forecast, Westpac has left its official cash rate (OCR) forecasts unchanged. The Reserve Bank (RBNZ) lifted the OCR to 2.75% on 2 September, its second increase since resuming tightening in July, and its next review is on 28 October.
The bank anticipates a hold at that meeting, followed by a rise to 3% when the December Monetary Policy Statement is released. It still sees further rate rises in 2027, but Eckhold cautioned that “there is a lot of water to go under the bridge before then”.
Read Westpac’s full October 2026 forecast update.
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