Billions in wealth lost during one of the severest housing corrections

He says most people feel the property market has had a rough couple of years but few seem to grasp how severe the correction has been in real terms.

House prices in New Zealand reached their peak in late 2021 – the culmination of a frenzied run fuelled by near-zero interest rates, Covid-era stimulus, and a collective mania. Properties sold tens of thousands of dollars above asking price within hours.

Since then, the market has sobered up. In Auckland, values peaked in November 2021 and have since fallen about 21% and in Wellington have dropped about 25% - the worst performing major city in the country.

Nationally, the median sits roughly 17–18% below the early 2022 peak, hovering around $795,000 to $808,000 at early this year. “This is a massive fall by any measure, but it still understates the damage,” Bolton says.

“The erosion of property wealth needs to account for what's happened to the purchasing power of money over the same period.”

New Zealand's inflation surged aggressively following the Covid stimulus era. Cumulative inflation from the late-2021 house price peaks to the end of 2025 totals about 19–20%.

He says when combining the price drop with inflation:

In Wellington, a 25% nominal fall combined with ~19% cumulative inflation equals a real purchasing power decline of about 37–38% while in the country’s biggest city on the same basis the real fall is about 33–34%.

“A Wellington homeowner who bought at the peak and sells today hasn't just received 25% less than they paid – the money they get back buys nearly a fifth less than it would have in 2021,” Bolton says.

The $570 billion elephant in the room

Looking at the total value of New Zealand's housing market, it doesn't look too disastrous on paper. “That's because we've built tens of thousands of new homes since 2021, which artificially props up the total pool of wealth.”

If the new builds are stripped out and looking only at the balance sheets of people who owned a home at the 2021 peak, Bolton says that existing housing stock was worth $1.72 trillion.

To keep the exact same purchasing power homeowners had in 2021, the value of those homes needed to grow by the cumulative inflation rate. “Because values fell instead, the ‘real wealth’ loss on those physical houses is a staggering $630 billion.”

And when looking at the other side of the ledger: the mortgage – inflation eats not only the real value of a house but also the real value of debt.

“In late 2021, Kiwis were sitting on roughly $335 billion in residential mortgages. Over the past four years, inflation has effectively eroded about $65 billion of the real economic burden on that debt. That's a win for the borrower.”

He says taking the $630 billion real loss on houses, and subtracting the $65 billion real gain on the debt, we are left with a net real wealth loss of about $570 billion.

“That is how much purchasing power has simply evaporated from existing homeowners.”

Bolton says while it’s not real wealth loss and arguably the peak was only fleeting and few Kiwis acted on it, however the feeling that comes from the evaporation of “paper” wealth is still real, as is its impact on behaviour.

“This is why the broader economy is struggling to get out of first gear. It’s the exact opposite of the wealth effect we saw during the boom.

“In 2021, everyone felt rich on paper, so they went out and spent up large.  That wasn't a new thing. For decades homeowners borrowed and spent with total home loan debt growing from $65 billion in 2000 to $335 billion in late 2021.  That is annualised debt growth of over 8% per year for two decades. Now homeowners feel decidedly poorer.

“Even if homeowners didn’t sell their house at the peak, knowing they've lost that much in real equity snaps their wallets shut. When a collective $570 billion of paper wealth vanishes, consumer confidence and spending dries up.”

Why hasn’t there been more carnage?

Bolton says with falls of this magnitude, why hasn’t there been a a wave of distressed sales and mortgage defaults. The answer lies in who bought at the peak – and how few of them there were.

The 2021 mania was extraordinary, but it was brief. The cohort of buyers who transacted at or near peak prices is actually quite small relative to the total stock of homeowners, he says.

The vast majority of property owners bought well before the 2020–21 surge and still sit on substantial equity.

The other circuit breaker has been the labour market. Unemployment has risen, but not to levels that trigger mass forced selling.

Most mortgage holders have been able to service their debt. “Expensively, yes, but serviceably.  The real loss has been those forced to meet the market and the face of that has largely been relationship breakdowns.”

The recovery and the Iran shock

The recovery was always going to be long and unexciting, he says.

Bank economists had been forecasting nominal house price growth of about 2–5% this year but then came the war in Iran sending Brent crude surging toward $116 a barrel.

“For New Zealand's housing market, the timing could hardly be worse.” Oil price spikes feed directly into CPI inflation, which was already running at 3.1% annually.

Markets have already priced in the possibility of the Reserve Bank hiking rates to combat this. Since the war began, the three-year swap rate has jumped from 3.19% to 3.93%.

When swap rates jump, the cost for banks to borrow money jumps, and that heavily dictates what mortgage holders end up paying on their fixed rates.

Because of this, ANZ, the country’s biggest mortgage lender, has revised its outlook for this year. Instead of 2% growth, it is now forecasting a 2% fall, citing the oil shock, dropping consumer confidence, and upward pressure on mortgage rates.

So what?

Bolton says the most likely outcome is that any meaningful housing recovery is now delayed to 2027 at the earliest.

“But it's not all doom and gloom. Recessions don't last forever. The fundamentals that underpin a recovery – improved economics, immigration, pent-up first-home buyer demand, people needing to move, and falling inventory – remain intact.”

But when the economy eventually recovers, housing wont flop back to the good ol' days, he says. “This time there will be more muted house price growth. It’s has been long overdue.”

The Government has done much to ensure supply keeps pace with demand, from regulatory reform, to parallel importing of building materials, and the release of land supply. “That's a good thing long term, but doesn't change how hard it feels for homeowners today.”