The New Zealand real estate market is in an interesting phase we are calling an “Inflection Point.” Over the past few years, it has weathered significant lows, with the Official Cash Rate (OCR) playing a pivotal role in shaping its trajectory. This month’s 50 basis point drop in the OCR should signal the beginning of a new chapter for the property market, potentially positively influencing buyers, sellers, and investors.
A Quick Recap of Recent History
The COVID-19 pandemic brought widespread uncertainty, and in response, the Reserve Bank of New Zealand (RBNZ) slashed the OCR to historically low levels to support the economy. This move spurred a frenzy in the property market, with unprecedented demand driving property prices to record highs in 2022.
However, the tide began to turn at the end of 2022 when inflationary pressures forced the RBNZ to take action by raising the OCR. Higher borrowing costs cooled the property market significantly, leading to reduced buyer activity, falling house prices, and a steeper plunge in market sentiment. Over the last year and a half, this decline has stabilized, but the market has struggled to regain its spark, leaving many stakeholders wondering what’s next for the housing sector.
The Steady Decline of the OCR
Since August 2024, the OCR has been on a steady downward trend. This easing signals a shift in monetary policy from combating inflation to fostering economic growth. With the latest 50 basis point drop poised to further to stimulate activity, setting the stage for potential changes in the property market landscape.
What Does a 50 Basis Point Drop Mean for the Property Market?
A significant OCR drop often ripples across the financial ecosystem, impacting interest rates, consumer behaviour, and ultimately, the property market. Now that the OCR reduction has happened here’s what it could mean for New Zealand real estate:
1.Lower Mortgage Rates
A reduced OCR generally leads to lower interest rates on mortgages. Prospective homebuyers, who may have been holding off due to high borrowing costs, could be incentivized to re-enter the market. Lower rates make home loans more affordable, potentially spurring demand and increasing buyer confidence.
2.Rising Buyer Activity
Similar to the low-OCR period during the pandemic, a cut in rates will see more first-time buyers, upgraders, and investors competing for properties. This renewed interest will help bring more buoyancy to a currently subdued market.
3.Price Stabilization and Recovery
Falling property values have been a hallmark of the downturn since 2022. While it’s unlikely the market will return to the peaks seen during the COVID-era boom, increased demand will stabilize prices and even set the stage for growth in some regions.
4.Improved Investor Confidence
Property Investors have been cautious amid declining prices and high borrowing costs. A lower OCR will reignite interest, especially as rental yields may become more attractive when paired with reduced financing costs.
5.Economic Stimulus
The real estate market is a critical driver of the New Zealand economy. A revitalized property market will have positive spillover effects across related industries, such as construction, home improvement, and retail, further contributing to economic recovery.
So, what’s next?
The New Zealand property market is at an Inflection Point. While the past two years marked a sharp correction in response to higher borrowing costs and declining demand, the latest 50 basis point OCR drop will shift momentum towards recovery. Buyers, sellers, and investors should keep a close eye on how interest rates and market sentiment evolve in this new phase.
If the OCR reduction ignites activity, New Zealand’s real estate market could bounce back with renewed energy—but likely in a way that reflects a more sustainable equilibrium rather than the highs of 2022.
Looking to invest before the market surges? Connect with our team at Equiti; we’re dedicated to helping you find the perfect property. If you haven’t yet consulted your mortgage adviser about your purchasing power, we recommend doing so. As always, we encourage financial advisers to share this article with clients to assist them on their property-buying journey.
Data: REINZ - NZ Average House Price Jun-04 to Jun-24. Stats from Dec-24 are purely for illustration, and are not accurate or actual.