First, mortgage stress is real and growing. Back in November 2023, the RBNZ’s Financial Stability Report warned that non-performing housing loans, those over 90 days past due or impaired, would nearly double from 0.4% to 0.7% by March 2025. That’s $1.3 billion in troubled loans already. Centrix data from March 2025 confirms arrears are at their highest since 2017, with a 12% year-on-year increase in mortgage delinquencies. Borrowers who took out hefty loans in 2020-2021, often exceeding seven times their income, are spending half their gross earnings on repayments.
If these borrowers start defaulting en masse, house prices could take a hit. The logic is simple: defaults force sales, flooding the market with properties and driving prices down, which is exactly what the RBNZ and government doesn’t want to happen. CoreLogic’s December 2024 Housing Chart Pack shows house prices already fell 5% since February 2024, with listings 25% above the five-year average.
Economists like those at Squirrel predict a flat market in 2024 but warn prices could dip further in less desirable areas. A 20% peak-to-trough drop, as forecasted by Capital Economics in 2022, isn’t off the table if defaults spike. Yet, the RBNZ claims the financial system is robust, based on outdated data showing arrears still below the 1.2% seen during the 2009 GFC, as if this is a good benchmark.
On Wednesday, RNZ reported:
Finance Minister Nicola Willis said their economic decisions had contributed to the cut, opposed to the last Labour-led government.
"What we know for a fact is that the last government's extremely high spending levels added fuel on the inflation fire and let inflation get up over 7 percent" she said.
"We now have inflation back in band and that's partly because we've taken such a more responsible approach to spending."
She said the government's operating allowance was the lowest in a decade, which showed a prudent approach.
"Governments can make things a lot worse when it comes to inflation in interest rates, and we've taken it upon ourselves to make things better," she said.
Finance Minister Nicola Willis is trying to remain calm while scrambling to prop up the housing market. She’s also brazenly taking credit for the Reserve Bank of New Zealand’s independent decision to slash the OCR. This move, driven by the RBNZ’s concern over a potential housing bubble burst, has little to do with coalition policy and everything to do with shielding the economy from a deluge of forced sales.
Now don't get me wrong. House prices do need to come down. But the government’s not willing to let that happen in a controlled manner. Instead they're loosening planning regulations, as touted in their 2024 housing agenda, which risks inflating prices further rather than addressing affordability, with the 2025 Demographia report showing New Zealand’s housing remains among the world’s least affordable. This is only going to make things worse, with estimates showing 24,000-36,000 households were already under significant mortgage stress in 2024, with numbers likely higher in 2025 due to persistent affordability pressures and softening labor markets.
Obviously the government putting pressure on wages while prices remain overinflated, causing fewer sales, isn’t helping to get New Zealand back on track. House sales are at their lowest since 2011, down to under 60,000 annually in February 2023, per Infometrics. CoreLogic notes a 10% drop below typical seasonal sales in November 2024. Meanwhile, net migration boosts demand but also suppresses wage growth by expanding the labour pool, as ANZ pointed out in April 2025. Budget 2025 projects a 1.5% wage rise over the long term, but that’s cold comfort when households saving for or paying off mortgages are already financially stretched.
In March, RNZ reported:
Number of people behind on mortages at 8-year high
The number of people falling behind in mortgage payments has hit levels not seen since 2017, according to credit agency Centrix.
Its January credit report indicates mortgage arrears were at an eight-year high, with personal loans, buy-now-pay-later (BNPL), retail energy and telco arrears on the rise.
Consumer credit defaults also increased by 42 percent on the year earlier, while personal insolvencies showed signs of an uptick, but remained below historical levels.
The RBNZ’s OCR cuts, down from 5.5% in August 2024 to 3.25% now, are a response to this grim reality. They’re banking on lower rates (one-year fixed at 5.31%, per Canstar) to ease borrower pain and stimulate sales. But with global uncertainties like U.S. trade tariffs looming, more companies closing their doors and lower wages biting, the RBNZ’s path to a “neutral” 3% OCR by mid-2025 might not be enough to stop the slide. The housing market’s not collapsing just yet, but without real wage growth and with thousands of defaults lurking, the RBNZ and government are playing a very dangerous game.
