With interest rates slowly dropping, what will it mean for buyers and sellers this year?

Most property owners were able to breathe a sigh of relief at the end of 2024, with the official cash rate being dropped by the Reserve Bank, resulting in the lowering of interest rates.

And the good news is, there might be another one or two small decreases to come in 2025.

Of course, the reality is that it will take years to ever get close to the eye-watering low rates of 2021, where most of the major banks were less than 3%. But with the Reserve Bank finally loosening the purse strings, what will it mean for those buyers and sellers who have been holding on tight for the last few years?

The property cycle - it’s a ride!

Generally speaking, the property market moves in a cycle with four key quarters of activity. There is the market peak, in the ‘12 o’clock’ position, followed by a slowdown, a slump, recovery and a boom.

Recent data from CoreLogic’s hedonic Home Value Index shows that the end of 2024 likely spelled almost rock bottom for property values, with the ninth drop over the previous 10 months. But the good news is that after the ‘floor’ comes the upswing. More buyers enter the market, sellers are more confident about getting a good price, and competition heats up.  

However, despite knowing the recovery is somewhere around the corner, most experts are remaining cautious as to how quickly any kind of significant price rises will occur.

CoreLogic's chief property economist Kelvin Davidson says ‘conflicting forces’ may remain a key theme for the property market in 2025, with the effects of lower mortgage rates dampened to some extent by a still-sluggish economy, job security and credit restrictions in the form of debt to income ratios.

"Our expectation is that values could increase by around 5% in 2025 across NZ as a whole, which would be pretty subdued compared to some past cycles."

2024 interest rates vs. predictions for 2025

CoreLogic’s head of research Nick Goodall says that the biggest difference for 2025 is certainly that interest rates are on their way down.

"They're falling now and will be sustainably lower as opposed to 2024, when they have been constraining for the majority of the year. That's a pretty big difference and will add to demand."

He also said the economy was expected to improve, which was likely to flow through to increasing property prices. But some things which have been constraints will continue to be constraints, i.e.relatively high listings, decent choices for buyers, unemployment increasing and debt-to-income ratios potentially becoming a restriction in the second half of the year, too.

"There is enough that says things will improve in 2025 but there are other restraints which is why we are predicting a 5% annual growth in prices - not something in the realms of 7% to 10% that you might otherwise expect if you were told interest rates would be materially lower than this year.

“But we do expect around 90,000 transactions in the housing market in 2025, about 10,000 more than 2024.”

Moneyhub’s interest rate predictions for 2025 were for gradual and steady reductions, with dramatic cuts by the Reserve Bank deemed unlikely by most experts. Current forecasts from trusted economists and published research suggest the OCR will stabilise between 3% and 4% over the next two years, which would correspond to fixed mortgage rates from the big banks ranging from approximately 4.5% to 6%.

Ed McKnight from Opes Partners said that by November 2025 they think the one year interest rates will be around 5.3%. And three major banks - ANZ, ASB and BNZ - have all thrown their own predictions into the ring to say that in June, they think one year rates will be anywhere from 4.9% to 5.7%.

Squirrel Mortgages are slightly more optimistic, with founder and head of mortgages John Bolton assuming that if 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. Which might be as-good-as-it-gets for a while.

“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,” he adds.

It’s time to make a move - buyers

Many experts are saying that if buyers are thinking about making a move, they should do it as soon as possible in 2025. Camron Meade, Central North Island sales manager for PGG Wrightson Real Estate, said that lower interest rates typically stimulate buyer confidence, especially for lifestyle and rural properties, which are often seen as aspirational purchases, and require more attractive financing.

Mortgage Centre principal advisor Praveen Bhati told Radio New Zealand that preparation was critical to ensure a person was not just able to buy when ready, but knowledgeable enough to make or negotiate good deals.

“For me, it’s all about starting early, as soon as someone has thought ‘we should buy a house’ sometime in the next 12 months, they should speak to a professional – a mortgage broker or the bank – and find out where they stand and how far they are to achieving their goal,” he said.

“A lot of the time, people wait and wait, see a property, then go to the bank which tells them they are still six to eight months away.”

His advice for first-home buyers was to also lower their expectations when it came to purchasing property.

“Some have lofty goals of what they want when half are already in a position to buy something cheaper. I tell them that the first home doesn’t have to be a final home, it’s all about getting on the ladder. Add some value, then sell it and walk away with a good profit and get a better place.”

And Tella Mortgages CEO Andrew Chambers agrees with Praveen’s sentiments, advising first-home buyers to get into the market now because it would only become harder from here on in.

“The window for good buying will close relatively quickly and competition for housing will begin to increase so those looking to buy should act quickly.”

“As we come out of the down cycle and into greater job security, activity will pick up – inflation improving, rates falling, tax adjustments all add up to more financial security and that will drive activity.”

Camron’s top tips for buyers coming into 2025?

“Act decisively. If you’re pre-approved, consider moving quickly before competition increases. Research thoroughly and focus on properties that offer long-term value, particularly in growth regions. But also negotiate wisely to take advantage of any remaining seller caution early in the season.”

So what’s on the cards for sellers?

Camron says that the first signs of optimism in the market has been a modest rise in new listings, indicating a growing confidence among sellers that they can achieve their price expectations. He also thinks the more motivated sellers (like farmers or lifestyle property owners seeking to downsize) may accept slightly lower offers to finalise transactions.

“It is still very much a buyer’s market, but with more eyes on property and general sentiment suggesting improving conditions following the bottom of the market etc, enquiry levels then increase, which buyers see when they visit the open days, and this in itself creates a new level of FOMO.

“Then with renewed demand, we’re likely to see more properties listed. And once there are more buyers in the market, sellers might be less inclined to negotiate heavily, which could lead to more stable, or slightly increasing prices.”

Regional differences will still play a role, for example areas with strong local economies or attractive lifestyle amenities are likely to see higher activity. And after the next OCR update from the Reserve Bank in February, another drop may signal further lowering of interest rates, greater competition between buyers and a quick swing to a seller’s market.

Camron’s advice to those who do decide to go to market?

“Present well. Invest in staging and marketing to capitalise on renewed buyer interest. Price realistically, ensuring you align your expectations with the current market to attract genuine offers. And be open to negotiations - flexibility can close deals faster, especially for high-value rural or lifestyle properties.”

Thinking about listing your property in 2025?

Here at PGG Wrightson Real Estate, we help Kiwis make their next move, wherever you are and wherever you’re going. Contact a PGG Wrightson Real Estate office near you and talk to one of our friendly, experienced agents.