Check out JB's latest NZ property market update below, or scroll down to read the full article:
Welcome back to our latest property market update—where we look at what’s been happening in New Zealand’s housing market, the wider economy, and interest rates, over the last few weeks.
First up, what’s the go with interest rates?
Following the Official Cash Rate cut (OCR) on August 14th, the market saw a flurry of mortgage rate decreases.
The decision marked a real about-turn for the Reserve Bank (RBNZ), which, right up until that point, had been adamant that rate falls were off the cards until sometime in 2025.
All the weak economic data we’ve seen over the last little while ultimately forced the RBNZ’s hand—and so while it was a dramatic turnaround, in my mind, it wasn’t a moment too soon.
A few weeks later, and interest rates have largely settled. It feels like everyone’s holding out, waiting to see what will happen as part of our next OCR announcement on 9th October.
If you’d asked me a week ago, I’d probably have picked a 0.50% cut in October as the likely outcome, but now I think we’re in for another 0.25% decrease.
The reason I don’t think the RBNZ will go bigger than that is because we’ve seen a positive uptick in activity across the housing market in response to the news of falling rates—as well as an increase in business and consumer confidence.
So, the RBNZ will want to temper our enthusiasm, and even though our economic outlook remains weak, I think the RBNZ will proceed with caution to avoid homeowners getting ahead of themselves.
What’s the outlook beyond October?
After 9th October, there’s just one more OCR announcement to come before the end of the year, on 27th November, and most of the market is expecting that to bring another 0.25% decrease as well.
If that’s the case, the good news for borrowers is that one-year rates should be sitting below 5.95% by Christmas.
Then, we’ll have a bit of a break before regular programming picks up again in late February 2025. And it’ll be at that point (assuming things are tracking in line with RBNZ expectations) that we may see some of those larger rate cuts start to come through.
At this stage, the official word from the RBNZ is that it will be late 2026 to early 2027 before we get back to a neutral OCR of 3.0%—but the market is forecasting that it could happen as early as the end of next year.
If that’s the case, that would mean there are significant falls to come over the course of 2025, and I’m picking that most of that will be front-loaded into the first six months.
What does that mean for NZ’s property market?
As a rule, interest rates and house prices operate on a seesaw i.e. when one goes down, the other goes up.
But even though buyers have started returning to the housing market in solid numbers since mid-August, I’m not expecting that to fuel a significant recovery in house prices—at least not yet.
The reason being that a lot of the activity we’re seeing at the moment is just a release of all the pent-up demand that’s been building over the last couple of years. People put their plans on hold while they waited for interest rates and house prices to settle, and now that’s started to happen, they’re stepping back into the market.
Once that demand has flowed through, the factors that might support a significant recovery in the housing market just aren’t there.
Yes, interest rates are on the way down again, but they’re still high relatively speaking. And even once further relief flows through over the coming months, it’s going to take a while for people to recover from the last couple of years and rebuild savings buffers.
In the short term, most households will focus on growing their savings and getting back to a good place before they start thinking about making any big new financial commitments.
The economy is weak, and there are some global forces at play that could impact how quickly we recover. China, in particular (as our biggest trading partner), is heading into a low-growth environment over the next few years. The US economy is also starting to look like it may come off the boil, which, if it happens, will have implications the world over.
I’m also conscious that we have a record number of houses for sale, so the supply-demand equation is definitely skewed in buyers’ favour.
Of course, there will still be buyers out there, but I wouldn’t expect house prices to take off anytime soon. Instead, once that initial demand has been met, the housing market should settle down and return to some sort of normal.
Prices could recover roughly 5.00% or so over the next year, but I don’t think it’ll be any more than that.
The silver lining of all this is that it should mean we’re in for a stable housing market over the coming months and years—and with significantly lower interest rates on the way, that’s good news for borrowers too.