Monthly Property Insights

The most recent Monetary Policy Review by the Reserve Bank was delicately balanced in advance, with some analysts expecting a more conservative 0.25% cut and others thinking a bolder 0.5% drop was required, to kick-start confidence and the economy. In the event, the RBNZ opted for the larger cut, as they try to get on top of the lack of confidence that pervades the economy (and residential property market) at the moment.

The economic backdrop

Indeed, the phrase that was used in the statement from the RBNZ was ‘excess precaution’, and the risk that this undermines spending and business investment by more than is really necessary – hence increasing the chances that spare capacity in the economy lingers and that inflation could undershoot the 1-3% target range sometime down the track.

In other words, the mood across NZ is still considered to be too pessimistic and the hope is that a 0.5% OCR cut will be the shock treatment required to get everyone into gear again – whether that’s in the general economy, or business investment, or indeed the property market.

Of course, it’s important to acknowledge that there are already some tentative green shoots emerging in the economy – e.g. a rise in filled jobs, a stable picture for new dwelling consents, some hints of life in retailing – and we can’t ignore inflation altogether either. The RBNZ already anticipates that it’ll get close to 3% (if not slightly above) in the Q3 data, which is a concern to keep an eye on.

However, there’s an acceptance that the larger problem right now is economic weakness and, as noted, the aim is that an OCR of 2.5% (maybe even going below that yet) is enough to shift the dial.

The housing market perspective

As widely covered in the media, the banks had already been lowering mortgage interest rates in advance of the latest OCR call anyway, especially for one-year fixed terms. So the latest OCR cut itself may not actually produce much more in the way of cheaper mortgage rates. That has already happened, and will progressively flow through to the market in the coming weeks and months, as more existing borrowers reprice their loans down to new market levels.

Meanwhile, with housing affordability looking a little more comfortable, the stock of listings having dropped, and the economy and labour market set to strengthen into 2026, the forces are building for fresh growth in property values next year. But it doesn’t seem likely to be a boom, given we now have the restraint of debt to income ratio limits on the table. The loosening in the LVRs from 1st December may have a small upwards influence, but probably more for investors than first home buyers.

The ‘Mums and Dads’ are back

Within that wider context, first home buyers remain a strong presence in the market, and at the same time we’re also seeing a continued comeback by mortgaged multiple property owners – including the cliched Mum and Dad investors. These new investors are faring pretty well in the current soft market, managing to secure properties at lower prices than last year, but not having to compromise on size or quality. A smaller tax bill with mortgage interest deductibility back to 100% is certainly a help for investors, but lower mortgage rates themselves and smaller cashflow top-ups have most likely been the more significant factor.