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House price growth is expected to be slower over the next two years than previously thought, eventually rising to an annual increase of 7% in 2028, according to the latest Treasury forecasts.

The Half-Year Economic and Fiscal Update (HYEFU) released on Tuesday reveals officials believe annual house price growth will be 1.9% in 2026, a substantial drop from the 5.6% forecast in May’s Budget document.

The following year, house prices are expected to grow 6.6% (compared to 6.7% in the Budget), before hitting 7% in 2028 (above the 6.2% in the Budget).

That’s the highest annual growth rate recorded over the forecast period out to 2030.

In 2029, house prices are predicted to lift 6.6% (compared to 5.3% in the Budget) and then 6.8% in 2030.

These house price annual changes are far below what was seen in 2021, when prices grew 29.6% (due to a confluence of circumstances, including very low interest rates and the economic impacts of the Covid pandemic measures).

In the five years before 2021, annual growth ranged from 1.5% up to 15%.

Finance Minister Nicola Willis on Tuesday said she was interested in “moderate” house price growth and ensuring there was affordable housing for young New Zealanders.

She said she understood the views of homeowners who may have taken out loans at the peak of the market, may have negative equity, and are looking forward to some house price growth.

While officials forecast in May that house prices would increase by 0.3% this year, the HYEFU instead says by year end they will have fallen by 0.7%.

In its commentary, Treasury said the housing market’s response to falling interest rates had been “modest to date” due to the high number of houses for sale relative to the buyer demand.

“Anticipation of further declines in mortgage rates and low net migration inflows have also constrained the housing market,” the HYEFU says.

“Not all regions have faced the same housing downturn, however, with prices in the South Island around their 2022 peaks. As interest rates and net migration near their cycle lows, the housing market is expected to pick up across the forecast period and will support an increase in household wealth.”

The Reserve Bank has made nine cuts to the Official Cash Rate since the current Coalition Government came to power.

Commentary in its latest Monetary Policy Statement, however, gave the impression to some in the market that another cut was unlikely, leading to an increase in wholesale rates. That led some banks to lift their long-term interest rates.

New Governor Dr Anna Breman suggested financial market condition tightening was “beyond what is implied by our central projection for the OCR”. This led the swap rates to fall.

Alongside the decline in house prices, household wealth has fallen, according to Treasury.

“Household net wealth is now around 10 times annual disposable income on average, from around 12 times at the 2021 peak.”

But household consumption is expected to grow at a “slow pace” over the rest of 2025 before “accelerating” over 2026, in part due to house price growth.

Due to high interest rates, elevated levels of existing homes for sales, and lower house prices, the demand for new builds has been “contained”.

But officials said a recovering housing market will lift residential investment. This is in part down to house prices picking up, lower interest rates, and also more people in the country due to growing net migration - meaning more people wanting homes.