September update | A difficult winter, but there are reasons for optimism
It’s been another challenging month for the economy, both here in New Zealand and globally.
Towards the end of last year there were some genuinely positive signs emerging. Inflation was heading in the right direction, interest rates had come back significantly from their peaks, and confidence was slowly beginning to return.
Unfortunately, 2026 continues to throw more challenges our way.
Last week, the Reserve Bank increased the Official Cash Rate by 0.25% to 2.75%, its second increase this year. It pointed to higher fuel prices from the Middle East conflict, with annual inflation reaching 4.1% in the June quarter. The Reserve Bank still expects inflation to return to its 1-3% target band by the middle of next year, but for now it is gradually removing monetary stimulus.
My view is that floating mortgage rates are likely to increase by around 0.25%, while today’s OCR increase was probably already largely priced into wholesale fixed rates. That means there may be less immediate pressure on fixed mortgage rates, although some upward pressure could remain over the next six months.
Global uncertainty continues
I don’t normally delve too deeply into politics in these newsletters, but it’s difficult to talk about the global economy without acknowledging the impact of US trade policy. Donald Trump’s tariffs have created additional uncertainty for businesses and trading partners around the world, with the IMF warning that higher tariffs are raising goods prices and are likely to reduce global economic output.
The much bigger shock this year, however, has been the conflict with Iran and the disruption to the Strait of Hormuz.
Around one-fifth of the world’s oil normally passes through the Strait, so disruption there has had an immediate impact on energy prices, shipping and global confidence. Despite recent “diplomatic” efforts, shipping remains well below normal levels and the situation seems to change almost week by tweet.
That matters to us here in New Zealand because higher oil and transport costs flow through almost everything we buy, pushing up inflation and making it harder for the Reserve Bank to keep interest rates lower.
The rest of the world is rapidly changing how it produces energy
One interesting response to recent energy shocks has been the extraordinary investment in renewable energy.
In 2025 alone, China added around 438 GW of new solar and wind capacity, while the European Union added around 80 GW. Australia added 5.9 GW of renewable generation and New Zealand around 0.37 GW. To put the scale into perspective, 50 GW of solar capacity can produce enough electricity over a year to power roughly 8-12 million typical homes, depending on where it is located and how much electricity those homes use.
This is increasingly about more than climate change. It is about energy security and energy sovereignty.
New Zealand is already in an enviable position, with almost 90% of our electricity generated from renewable sources. We also have an advantage in that our hydro lakes can, to an extent, act like a giant battery, allowing us to conserve water when solar and wind generation are strong and use it later when demand is higher.
The more energy we produce domestically, the less exposed we are to volatile international oil prices and geopolitical shocks. Reducing our reliance on imported fossil fuels can help lower imported inflation, which, over time, is positive for domestic interest rates.
The rest of the world appears to have woken up to the risks associated with relying heavily on Middle Eastern oil and Russian oil and gas.
I’d like to see New Zealand treat energy independence with the same urgency.
Where does that leave the economy and housing market?
Things are still pretty tough, and I think a meaningful lift in confidence may depend on greater certainty around the Middle East, energy prices and the wider global outlook.
Closer to home, mortgage activity has softened, with Interest.co.nz reporting $7.9 billion of new mortgage commitments in July, the lowest monthly level since February.
Economist Tony Alexander’s latest survey also shows buyers remain cautious, with concerns around interest rates and house prices still weighing on confidence. FOMO remains very low, although first-home buyers continue to be active.
The positive for borrowers is that banks remain hungry for good business. We’re seeing strong competition, reasonable turnaround times and a good appetite for well-prepared applications.
For buyers, the quieter market is also creating some genuine opportunities. There are some very good deals around at the moment, and for anyone in a position to buy, it could be a particularly good time to start looking...
See you at The Home Show!
We’re looking forward to the Auckland Home Show from 10-13 September at the Auckland Showgrounds in Greenlane, with more than 450 exhibitors covering building, renovations, interiors and home improvement.
This year, Ben and I have been invited to join the team at Citeus Group at stand 645.
Citeus is an Auckland property developer specialising in modern townhouse communities. They have completed more than 45 projects across Auckland and currently have some great options for first-home buyers and property investors.
It’ll be a great opportunity to meet their team, check out some of their current developments and talk through what might work for you.
Ben and I will be there to help with the finance side as well, so if you’re heading along, come and say hello. We’d love to see you.
In the meantime
If you’re looking to buy your first home, move into your next home, invest, or build, Ben and I would love to hear from you and see how we can help.