The New Zealand economy is in a state of transition. Interest rates are shifting, the property market is adjusting, and Kiwis are trying to figure out their next moves.
We recently sat down with Kiwibank Chief Economist, Jarrod Kerr, to break down what’s happening with interest rates, house prices, and where the market is heading next. 2
The Reserve Bank of New Zealand (RBNZ) has been cutting the Official Cash Rate (OCR), with the most recent move dropping it by 50 basis points. While this wasn’t unexpected, the question now is: how low will rates go, and how quickly?
According to Jarrod, the RBNZ has reacted swiftly to economic conditions, delivering 350 basis points in cuts over time. Looking ahead, RBNZ has signaled further cuts, and most economists predict the OCR will settle around 3%.
But should the RBNZ go even lower? Jarrod believes there’s an argument for slightly stimulatory policy to boost the economy. “If it was up to me, I’d be a bit faster,” he says, suggesting that further easing could help speed up economic recovery.
Although rate cuts have started, their impact isn’t immediate. Historically, it takes time for monetary policy changes to flow through the economy, and Jarrod estimates it will take another six months before we see meaningful effects. Many businesses and households are still feeling the sting of high rates and economic uncertainty, meaning confidence hasn’t fully returned just yet.
Jarrod has spoken to businesses across the country, and while they are hopeful for a recovery, they’re not yet seeing the shift in activity. Many companies are still restructuring and cutting costs, and while they expect things to improve, the transition is slow.
With interest rates falling, many assume house prices will start to rise again. While this is likely true in the long run, the short-term outlook remains mixed. The biggest challenge right now? Supply.
“There’s a lot of stock on the market,” says Cheques & Balances co-host Mike Vincent, who is seeing high listing volumes but not necessarily surging prices. Jarrod agrees, pointing out that many sellers are still anchored to past property values, which means the market remains in a buyers’ favor for now.
Looking ahead, house prices are expected to increase gradually. Predictions suggest a 5% rise this year, with more momentum in 2025. While this isn’t a return to the runaway growth of past years, it’s a sign of stability returning to the market.
For those with mortgages, the big question is: should you keep payments high to pay off debt faster, or reduce repayments and free up cash?
Jarrod and Mike agree that different households will take different approaches. Some will prioritise reducing debt, especially after the financial strain of the last few years. Others will take advantage of lower rates to ease cash flow and reinvest in their businesses or personal spending.
From a financial advisory perspective, Mike is still recommending shorter-term fixed mortgage rates, noting that further rate cuts could make longer-term fixed rates less appealing. “A lot of people are jumping on that 4.99% for three years, but I still think six months or one year is the way to go for now,” he says.
While Kiwis are eager for immediate relief, economic changes take time to work through. The good news is that we’re on the right track—interest rates are falling, and the property market is stabilising. The key message? Be patient and trust the process.
For more insights into New Zealand’s economy, make sure to subscribe to Cheques & Balances.
If you’re looking for expert financial advice tailored to your situation, get in touch with Lighthouse Financial today.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
