Recent reductions in New Zealand's Official Cash Rate (OCR) have energised interest among property buyers. With declining mortgage rates, affordability has improved, and there has been more confidence from buyers. However, although lower rates present opportunities, broader economic conditions still define the property market.

What Do These OCR Cuts Mean?

Since August 2024, the Reserve Bank of New Zealand (RBNZ) has cut the OCR by 175 basis points, bringing it down to 3.75% as of February 2025. These reductions are aimed at supporting overall economic growth by making borrowing more affordable across the economy. While lower interest rates can improve market sentiment, the property sector remains influenced by a complex mix of supply, demand, and confidence.

A rate cut in isolation is not a silver bullet for the property market.

Mortgage Rates and Buyer Sentiment

Lower borrowing costs have prompted banks to revise their mortgage offerings. ASB, along with other major banks, has reduced home loan rates following the OCR cuts, but no public source verifies a specific drop to 6.89% for ASB’s variable rate in late February 2025.

As of late February 2025, ASB’s standard variable home loan rate was around 7.39%, with fixed-term rates seeing more significant reductions. For example, ASB’s 1-year fixed rate was cut to approximately 6.39%. This has helped improve access to credit and encouraged more buyers to re-engage with the market.

There are early indicators of increased buyer interest, but they are regionally uneven. According to CoreLogic’s House Price Index, national values declined by 0.3% over the three months to December 2024, and by 3.9% over the 12 months of 2024.

There may have been a temporary monthly lift in October, but it was not a sustained national trend. The broader quarterly and annual trend was downward.

In the Wellington region, property data had the following movements:

• Wellington region: ~1.4% quarterly decrease and ~5.6% annual decrease as of January 2025.
• Wellington City: ~1.6% quarterly decrease, ~7.1% annual decrease.

([Source: CoreLogic NZ January 2025 Housing Chart Pack])

The bounce in October may have been a blip rather than the start of a true recovery.

The Broader Economic Picture

Despite the OCR cuts, there remain some economic headwinds:

• Slow wage growth – Housing affordability is not just about lower interest rates. The average asking price for a property in New Zealand is still around NZ$750,000—roughly six times the average household income.
• High unemployment – Job insecurity is discouraging some would-be buyers, with financial security a top concern for them.
• Bank loan policies – Despite the fact that borrowing is cheaper, banks continue to have stringent loan-to-income ratios, which limit the amount of money to be made available to purchasers.

Will House Prices Take Off?

Real estate cycles do not turn on a dime. While OCR cuts are a key driver of market activity, other factors must align before prices enter a sustained upward trajectory.

Historically, house prices tend to recover only after a prolonged period of low interest rates, easing credit restrictions, and improved economic fundamentals. After the Global Financial Crisis (GFC) in 2008/09, for example, Wellington property prices remained flat for seven years before starting to rise.

At present, property turnover is still well below normal levels, with many buyers and sellers hesitant to act. While falling interest rates may attract more buyers in the short term, structural challenges such as affordability constraints and employment concerns suggest price growth will be moderate rather than explosive.

What Comes Next?

Several indicators will shape the next phase of the market:

• Investor sentiment – Investors have been largely absent in recent years. With regulations easing, some may start to re-enter the market, boosting demand.
• Building consents have dropped significantly - If this trend continues while demand slowly lifts, it could eventually drive upward pressure on prices.
• Credit conditions – If banks further loosen lending criteria, it could accelerate market recovery.

A Market for Selective Buyers

For those considering a purchase, now could be an opportune moment—but expectations should be tempered. Prices are unlikely to surge in the immediate term, and cash flow considerations remain crucial. Buyers who focus on affordability and long-term fundamentals will be best positioned to benefit from the current market conditions.

While OCR cuts have injected renewed interest into the housing market, sustained price growth will depend on a broader economic recovery.

References:

• https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/the-official-cash-rate
• https://www.anz.com.au/newsroom/new-zealand/2025/02/Media-Release-ANZ-cuts-fixed-home-loan-rates-February-2025/
• https://www.rnz.co.nz/news/business/542378/all-major-banks-cut-interest-rates-after-official-cash-rate-drops
• https://www.reuters.com/markets/new-zealand-home-prices-forecast-rise-50-2025-interest-rates-fall-2025-02-26/
• https://www.reuters.com/markets/new-zealand-house-prices-rise-6-next-year-lower-interest-rates-2024-09-01/ 
• https://www.reuters.com/markets/new-zealand-central-bank-cuts-rates-by-50-basis-points-2025-02-19/
• https://www.opespartners.co.nz/mortgage/interest-rates/interest-rate-predictions