As 2025 begins, New Zealand’s property market shows some signs of stabilising after years of volatility. House prices, especially in Auckland, have seen significant corrections since their 2021 peak, while tighter financial conditions continue to impact buyer activity. Speculation about a potential drop in the Official Cash Rate (OCR) by the Reserve Bank of New Zealand (RBNZ) in February has sparked debate about its effect on house prices and opportunities for first-home buyers.

The current market landscape: Nationwide, house prices have declined 15-20% from their peak, with sharper drops in some Auckland suburbs. While this has improved affordability, higher mortgage rates remain a barrier for many.  Sales activity was subdued in the last quarter of 2024, with both buyers and sellers seeming to take a “wait-and-see" approach. Rising construction costs and passive investor activity also helped to put a dampener on the property market.
For first-home buyers, lower house prices present opportunities, but stricter lending criteria and borrowing costs also pose challenges.
What a drop in the OCR could mean: If the RBNZ lowers the OCR in February (and it appears likely that it will), such a move could reduce mortgage rates and reignite property market interest for the following reasons:

1. Lower rates may boost buyer demand, stabilising prices or triggering modest gains, particularly in Auckland and major centres. Jarrod Kerr, the chief economist at Kiwibank has stated that falling interest rates will support the property market, and he expects steady gains in house prices will flow from there;
2. reduced borrowing costs may attract investors, creating competition for first-home buyers; and
3. lower rates could improve the borrowing capacity for those with stable incomes and sufficient deposits, but affordability challenges may persist in high-demand areas.

What this means for first home buyers: The outlook for first home buyers depends on broader economic factors, including wage growth, labour market conditions, and lending criteria. While lower interest rates could ease credit conditions, other challenges remain (for example, the last ANZ Bank Property Focus for 2024 identified that a recovery in the property market faces headwinds this year, including deteriorating labour market conditions, slowing population growth, and stretched affordability).
In general: New Zealand’s property market is poised for a potential shake-up. A drop in the OCR could breathe new life into buyer activity and ease pressure on mortgage holders, but first-home buyers could face a tricky balancing act. The coming months will reveal whether this marks the start of a housing revival along with a prime opportunity for some to refinance under better interest rate conditions.

Schnauer & Co,
1 Shea Terrace, Takapuna
09 486 0177
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