Forecast for OCR, interest rates, and housing trends
As the year wraps up, Squirrel provided insights into the expected economic changes and the housing market in New Zealand for 2025, focusing on key financial indicators.
OCR predictions for 2025
The Reserve Bank (RBNZ) concluded 2024 with a significant reduction in the OCR to 4.25%, with forecasts indicating another 0.5% drop by February.
While RBNZ plans gradual reductions aiming for a neutral OCR of about 3% by mid-2026, current economic weaknesses and controlled inflation suggest these adjustments might accelerate.
“I’m picking we’ll see a quick succession of cuts over the first half of 2025, getting us back to neutral sometime mid-next year,” Squirrel said.
Interest rate landscape
With RBNZ targeting a neutral OCR around 3%, mortgage rates are expected to adjust accordingly, potentially falling to between 4.5% and 5%.
Although rates didn’t dip below 5% before Christmas, projections for early 2025 suggest they could reach as low as 4.8% to 4.9% by spring.
Borrowers should recalibrate expectations as rates from the COVID era are unlikely to return soon, making any rate with a “four” at the forefront a competitive offer, Squirrel said.
Economic climate and impact on business
Lower interest rates spell good news for borrowers, potentially easing financial pressures.
However, the recent economic downturn has significantly impacted savings and financial stability for both households and businesses.
The anticipated relief from falling rates is unlikely to immediately translate into increased consumer spending or economic activity.
“Even as consumers start to feel the relief of further rate falls, it’s not going to be this big catalyst for people to rush out and start spending money, making significant purchases,” Squirrel said.
New Zealand housing market projections
The New Zealand housing market is poised for a recovery in 2025, albeit a moderate one, with economists estimating price increases of between 5% and 7%.
However, given the substantial declines in key cities like Auckland and Wellington, the anticipated “growth” is more about regaining lost ground. The market recovery will likely be uneven, with varying progress across different regions and sectors, Squirrel said.
Looking ahead
While 2025 is set to offer some economic reprieve, it’s expected to be a year of gradual and uneven recovery, with more substantial improvement projected for 2026. The focus for many will be on financial recuperation and navigating the uncertainties that remain in the wake of a challenging economic period, Squirrel reported.
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