We're ending the year not looking back—but looking ahead.
Here are our predictions for what could happen with the OCR, interest rates, the economy and NZ's housing market in 2025.
What could happen with the Official Cash Rate?
After rounding out the year with a 0.50% cut to the OCR in November, the Reserve Bank has us heading into Christmas at an OCR of 4.25%.
At this stage, we’ve been told there’s another big reduction on the cards in February (0.50%), followed by a series of smaller cuts designed to get us back to a “neutral” OCR of around 3% by mid-2026.
There’s a good chance, though—given how weak the economy is, and the fact that inflation now is under control—that the RBNZ will need to bring that date forward. We could see a series of quick OCR cuts over the first half of 2025, potentially reaching that neutral OCR by mid-year.
What does that mean for NZ interest rates in 2025?
We’ve said this before, but it’s important that borrowers are realistic in their expectations of what a “good” rate looks like moving forward—as the ultra-low rates we saw during COVID-19 are likely a thing of the past.
In the long-term, if the RBNZ is shooting for a “neutral” OCR of around 3%, that means we can expect mortgage rates to stabilise somewhere between 4.5% and 5%.
Assuming things track as expected next year, we should—finally—start to see rates below 5% (likely around 4.8% to 4.9%) sometime in March or April. Once we start getting rates with a four in front of them, that’s a pretty sharp deal.
Longer-term rates are expected to track a little higher in the wake of the US elections—with Trump’s planned introduction of various trade sanctions expected to have an inflationary impact for the global economy.
Shorter-term rates, meanwhile, are much more influenced by domestic factors—and will be quicker to reflect drops in the OCR. So these will be the ones for borrowers to watch.
How are things looking with the economy?
While falling interest rates are starting to provide some much-needed relief for borrowers, it’s going to be a while before the benefit of that flows through to businesses.
The last couple of years have drained people’s savings and weakened their balance sheets—so even with a little more cash in our back pockets, the focus for many will be on just trying to get back to a good place financially. People aren’t going to be rushing out and spending lots of money, making big purchases.
Until that changes, the outlook for businesses is going to be a bit of a mixed bag. Sectors like hospitality and local tourism might enjoy a bit of a boost over the summer holidays, but for many others, there are still likely to be some challenging times ahead.
And what does that all mean for the NZ housing market?
House prices are expected to recover slightly next year, with some economists (perhaps optimistically) predicting growth of between 5% to 7%—although results will vary across different parts of the market.
In nominal terms, house prices in major centres like Auckland and Wellington are still down about 15% in from market peak—and even more (25%-30%) once you factor inflation into the equation. So any “growth” over the next little while is really just a partial recovery.
Things are heading in the right direction, and 2025 should feel more positive overall. But the road to recovery will likely be a rocky one, with any real momentum unlikely until 2026.
That’s a wrap from us for 2024. Wishing everyone a safe and happy holiday break—and we’ll catch you again in the new year.
