Economists predict the property markets will grow 7% in the back half of 2025
Retail spending continues to gain traction in New Zealand and could have positive implications for the housing market.
Consumer spending ticked up 3.7% in February, compared with the same time last year, according to Westpac NZ's latest Retail Spending Pulse. At the same time, mortgage pressures have eased thanks to lower interest rates, leaving consumers to feel more confident about their purchasing power. And as homeowners and would-be buyers continue to enter the market or look for refinancing options, there could be more to come, said Satish Ranchhod (pictured), senior economist at Westpac NZ.
"The factors that are going to support spending are the same ones that are going to boost the housing market through the back part of the year," Ranchhod told the New Zealand Adviser. "What we're seeing is that interest rates have fallen quite sharply in New Zealand. It's going to take a while for the full impact to ripple through the economy, especially because a lot of households in New Zealand fix their mortgage rates. But through the back part of the year, we expect lower interest rates to boost spending. We also expect to see the housing market tipping higher with prices growing by about 7%."
The economist added that many households still haven't felt the effect of recent rate reductions.
"In part, that’s because many mortgages haven’t come up for re-fixing yet and are still on the relatively high rates that were on offer in recent years," Ranchhod said. "Over the next six months, around half of all mortgages will come up for refixing, giving borrowers the chance to secure a lower rate." He estimated that borrowers could save between $300 and $400 on monthly payments. And if consumers have more money in their pockets, it stands to reason that consumer spending will continue to increase.
The Retail Spending report's positive - albeit cautious - consumer spending figures "follow a tough 2024 for many retailers when sales undershot targets. And during our recent talks around the country, a number of retailers told us that they’re still grappling with soft demand and tough trading conditions," Ranchhod said.
In addition, many consumers and businesses alike are still struggling amid a continued cost-of-living crisis.
"The gradual recovery in spending isn’t surprising. While the big pressures on households have eased, they haven’t gone away," Ranchhod said.
Meanwhile, there are other positive indicators for the country's property markets.
In February, the Reserve Bank of New Zealand (RBNZ) cut the country's already-low official cash rate (OCR) to new lows. The central bank's widely-expected move was met with optimism for further rate reductions. Advisers and lenders alike have reported increased interest in purchasing new homes, while many more are looking to upgrade.
Conflicting forces persist
Kiwis continue to navigate an economy filled with conflicting headwinds and tailwinds.
The country's unemployment rate ticked up to 5.10% in February, causing some would-be buyers to remain cautious about entering the market, and pushing others out altogether.
Meanwhile, inflationary pressures appear to be subsiding in New Zealand, another likely indicator of increased consumer spending.
The 2024 fourth quarter Consumer Price Index (CPI) revealed that inflation in New Zealand is steady - up 0.5% for the quarter, or 2.2% for the year - and in line with market expectations.
