Market Update AUG 26: Rates are going up. House prices aren't.

Rates are rising while property values fall and unemployment climbs. That is an uncomfortable combination, and it is not the one most households were planning for a year ago. Here is where the numbers sit as at 18 August 2026, and what is pushing them.

The Official Cash Rate

The Reserve Bank raised the OCR by 25 basis points on 8 July, after holds in February and April. The Committee described the previous 2.25% setting as below neutral — stimulating an economy that no longer needed it — and signalled further increases were likely, without committing to when.

Where mortgage rates sit

Rates are rising because of inflation. And this inflation came from oil and global disruption, not from anything happening in the housing market.

What is driving it

Imported inflation, not domestic demand

The jump from 3.1% to 4.1% came largely from outside the country — a supply shock pushed fuel and freight costs up, and that fed through to almost everything else. Housing had nothing to do with it. The Reserve Bank responded to the number rather than to its source, which is why this tightening arrives without the hot economy that normally accompanies one.

A labour market going the other way

Unemployment at 5.6% is the highest in twelve years, and youth unemployment for 15 to 19 year olds is 25.3%. Beyond the headline, more people are working fewer hours than they would like — and reduced or variable hours are exactly the kind of income a bank discounts when it works out what you can service. Ordinarily all of this would argue for cutting rates, not raising them. The Reserve Bank is tightening into a weakening jobs market because the inflation number leaves it little choice, and that tension is the defining feature of this cycle.

Borrowing power is falling on its own

Banks test your ability to service a loan at a rate well above the one you would actually pay, and that test rate moves with market rates. As advertised rates rise, the amount any given household can borrow falls — regardless of what has happened to their income or to house prices. This is the mechanism quietly reshaping the market.

An election on 7 November, with property tax in play

How investment property is taxed is on the agenda this election, and the proposals in circulation differ enough from each other, and from the status quo, that the rules governing a purchase made today may not be the rules governing it in two years. The party detail matters less than the effect, which is the same either way: anyone weighing an investment purchase is being asked to commit capital before knowing how the return will be taxed. Uncertainty of that kind tends to stop transactions rather than reprice them.

What property did

July was the fifth-slowest July on record for days to sell, while the number of sales sat near the middle of REINZ's 35-year range for the month. Values are drifting down rather than falling sharply, stock is taking longer to clear, and the gap between what sellers will accept and what buyers will pay is what most of that delay actually is.

Supply, meanwhile, is still arriving. 40,581 new homes were consented in the year to June, up 19% on the year before, split roughly evenly between stand-alone houses and multi-unit developments.

The trends underneath the numbers

Conditions favour buyers, but affordability does not

Fifty days to sell, values easing and sales running 10% below last year all mean less competition and more room to negotiate than at any point in recent years. Working against that is borrowing power, which is shrinking as test rates climb. The constraint has moved: it is no longer finding a property or saving the deposit, it is the size of the loan the bank will approve.

The curve is flat past two years, not before

Moving from a one-year rate to a two-year rate costs around half a percent at every main bank, so that first step out is a real decision with a real price on it. Past that point the shape changes: at two banks the two and three-year rates are identical, at another the three-year sits below the two-year, and elsewhere the gap is a tenth of a percent. If you are considering a longer term, almost all of the cost sits in that first step rather than the later ones. A longer term is still a view on where rates go, and it holds you either way.

Investors are waiting on the tax rules, not the rates

What is holding investment purchases back is less the cost of borrowing than not knowing how the return will be taxed — including how interest costs are treated, which moves the arithmetic on a rental considerably more than a quarter-point on the mortgage does. That question sits with the election. Worth being realistic about what 7 November delivers, though: election results do not turn investment activity around the following week. On past form the response is gradual, as rules are legislated, tested and priced in. The date removes the uncertainty rather than restarting the market.

Your numbers, not the national ones

Everything above is national data, which describes nobody in particular. Your rate, your term structure, your income stability, how long you plan to hold and how much headroom you actually have will move all of it, and some of it a long way.

If you want to see your version — with the assumptions written down where you can argue with them — that is the conversation worth having.