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The New Zealand housing market is showing signs of improvement, and the Reserve Bank’s surprise decision to slash the Official Cash Rate (OCR) by 50 basis points to 3.75% could be a game-changer. But will it truly ease pressure on homebuyers and investors, or are there still hurdles ahead?
Housing Market Rebounds – But Cautiously
Residential property sales have climbed from a low of 59,000 in mid-2023 to nearly 71,000, signaling a market revival. However, price growth remains modest, with just a 2.5% increase since mid-2023. First-home buyers have been the most active group, while owner-occupiers remain hesitant due to lingering employment concerns and economic uncertainty.
According to independent economist Tony Alexander, business confidence remains high, but households are tightening their budgets. His latest Spending Plans Survey shows that a net 10% of people now plan to cut back spending in the next three to six months, reversing previous trends.
Investors Are Holding Back – Here’s Why
Real estate agents report a surge in first-home buyer interest, with a net 48% observing increased activity in that group. But investor participation is dropping sharply, from a net 36% positivity before Christmas to just 12% now. The reason?
Unlike previous cycles, investors aren’t feeling the urgency to jump in before prices skyrocket. With slow-moving price increases, higher costs for rates, insurance, and maintenance, and even declining rents in some areas, the financial appeal of property investment has diminished. Finding reliable tenants has also become more challenging.
Additionally, new debt-to-income (DTI) rules limiting investor borrowing to seven times property valuation are making it harder for some investors to secure financing. While the impact is still limited, restrictions will tighten as the market moves through 2025.
What the OCR Cut Really Means for Buyers and Investors
The Reserve Bank’s decision to cut the OCR from 4.25% to 3.75% and revise its outlook for further reductions suggests there is more slack in the economy than previously thought. With lower inflationary pressures, the central bank is now predicting an earlier end to the rate-cutting cycle by the end of 2025.
But will this spur a wave of new investment? While lower borrowing costs may encourage some investors to enter the market sooner, the overall effect is expected to be mild. Homebuyers and investors alike may benefit from slightly reduced mortgage rates, but major price surges remain unlikely in the near term.
New Zealand’s housing market is in recovery mode, but challenges persist. First-home buyers are leading the charge, while owner-occupiers and investors remain cautious. The latest OCR cut could provide some relief, but with rising property ownership costs and regulatory constraints, the market is expected to see only modest growth in 2025.
SOURCE: ONEROOF