Check out JB's predictions for 2025 below, or scroll down to read the full article:
We’re hurtling towards the summer holidays at pace—which means it’s time for our final market update of the year.
Rather than reflecting back on what's been happening in recent weeks, we’re looking ahead to what could be in store with the Official Cash Rate (OCR), interest rates, the economy and New Zealand housing market in 2025.
Let’s get into it.
OCR outlook for 2025
In late November, the Reserve Bank (RBNZ) delivered its final OCR announcement of 2024—a 0.50% reduction—so we’re now sitting at 4.25% heading into the holidays.
At this stage, the official word is that we can expect another 0.50% drop in February. After that, the RBNZ is looking to dial back the pace a bit, delivering a series of smaller cuts to get us back to a “neutral” OCR (of around 3.00%) sometime in mid-2026.
In reality, though—given how weak our economy is, and where inflation is sitting (i.e. back in its box)—I think the RBNZ will likely be forced to revise its forecast and bring that date forward.
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.
NZ interest rate outlook for 2025
With the RBNZ aiming for a “neutral” OCR of around 3%, that means mortgage rates should fall back and settle somewhere between 4.5% and 5%.
Unfortunately, we didn’t quite get there this side of Christmas, but assuming things go as expected next year, we should start to see mortgage rates below 5%—probably between 4.8% to 4.9%—sometime in March or April.
Moving forward, it’s important for borrowers to temper their expectations around what a “good” rate looks like, because we’re unlikely to get back to the same low rates we saw during COVID any time soon. In this environment, once you start to see rates out there with a four in front of them, you’re getting a pretty good deal.
Thinking about the different loan terms, short-term rates are likely to be the best bet for borrowers over the next little while.
Shorter-term rates are largely dictated by what’s happening at a domestic level—reflecting drops in the OCR, for example—while longer-term rates are much more influenced by what’s happening overseas, specifically in the US.
Longer-term rates are expected to track higher, at least in the near future, as a result of Trump’s re-election—with his planned introduction of a variety of different trade sanctions expected to have an inflationary impact on the global economy.
It’s going to be interesting to watch how things play out on that front once he’s back in the White House from late January.
Economic outlook for 2025
Falling interest rates are obviously good news for borrowers (leaving us all with a bit more cash in our back pockets) but it’s going to take some time for the benefit of that to filter through to the business sector.
The last couple of years have been nasty—eating away at people’s savings (households and businesses alike) and doing real damage to their balance sheets.
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. The number one priority for the next little while is going to be on rebuilding their finances.
“Thrive in 2025” has been the new rallying cry in recent months, but I think the reality is that next year is going to be a bit of a mixed bag for businesses. Hospitality and local tourism, for example, should hopefully get a bit of a boost over the summer holidays—but for others, it’s still going to be a real slog.
In my view, any meaningful recovery is unlikely until sometime in 2026.
NZ housing market outlook for 2025
There’ll be ups and downs, but house prices are expected to recover somewhat over the course of next year.
At the moment, most economists are picking between 5% and 7%, but that (to me) feels a little optimistic to be honest.
Bear in mind that, in Auckland and Wellington, prices are still down around 15% from peak in dollar terms—and somewhere between 25% and 30% once inflation’s factored in. So, we’re not talking “growth” as such, we’re simply talking a partial recovery.
Progress will come in fits and starts, and different parts of the market will bounce back to different degrees, depending on things like buyer demand.
So, the good news is that things are looking up, and next year should feel much more positive in lots of ways—but it’s going to be a bit of a bumpy road, and any serious green shoots are likely off the cards until 2026.
Well, that’s it from me and the rest of the Squirrel team for this year.
Wishing everyone a safe and relaxing holiday break—and we’ll catch you in 2025!