Happy New Year! We have finally got through two difficult years (2023 and 2024). What does 2025 have in store for us?
2024 saw headline CPI (Inflation) decrease down from 7.2% to 2.2%. This allowed RBNZ to decrease OCR with more confidence. OCR dropped from 5.5% to 4.25% and home loan rates saw sub-6% for the first time in two-years.
However, reductions in home loan rates from the banks did not heat up the property market as expected. In fact, house prices across the country remained more or less stagnant throughout 2024.
We also saw unemployment rates go up and GDP dropped. This is likely because the effects of inflation and OCR decreasing will take approximately 12-18 months to take effect in the economy.
These are my 2025 Predictions:
OCR Movements
As of late 2024, the RBNZ reduced OCR to 4.25%. We anticipate that further OCR cuts will occur in early 2025 and will settle around the 3% mark around mid-2025.
Home Loan Interest Rates
With expected OCR reductions, home loan interest rates are expected to fall through 2025. We expect that 1-year rates will be between 4% - 4.5% by the end of 2025.
House Prices
Economists predict house prices will rise by approximately 6% over the year, following a period of stabilization.
Major banks forecast an increase in house prices ranging from 6% to 10.9% for the year ending December 2025.
I personally believe the above is optimistic for 2025. The above is expected for 2026. This is because the effect of decreasing OCR and inflation will only flow through to the economy in 12-18 months.
Also, it's still somewhat of a buyers market:
There is excess stock of houses on sale due to economic hardship and investors letting go of their houses after Brightline test requirements eased in mid-2024.
Alot of new builds unsold with developers desperate to sell.
This means buyers have more options available.
In a buyers market, house prices are unlikley to increase overall.
My prediction is that house prices will increase by a maximum of 3% - 5% maximum.
I have also taken the following into consideration when making my assessment above:
NZ GDP is likely to be stagnant over 2025 and
Unemployment is expected to peak in Q2 2025. The good news is that unemployment is expected to decrease from mid-2025.
Final thoughts
These projections suggest that while the New Zealand economy may face challenges in the short term, a recovery is anticipated in the latter part of 2025, with more robust growth expected from 2026 onwards.
Disclaimer
The contents of this article are for information-only and may express the opinion of the writer. This article is not be taken as personalised financial advice, as everyone’s situation is different. Please always seek advice from a financial adviser before making any decisions with your personal and/or business finances.
