The New Zealand property market has been through significant fluctuations, with house prices mostly declining throughout 2024. However, forecasts suggest that 2025 may see a shift toward price increases. Some predictions estimate rises of up to 10%, while others anticipate more moderate growth between 5% and 7%.
While these projections indicate potential growth, several factors could still impact market trends. Interest rate adjustments, employment levels, global economic conditions, and housing supply will all play crucial roles in shaping the real estate landscape.
Key Factors Influencing House Prices in 2025
1. Interest Rate Declines
A significant driver of potential price increases is the expected reduction in home loan interest rates. Lower interest rates make borrowing more affordable, often stimulating the housing market. Previous trends have shown that falling interest rates contribute to price surges, such as during the post-pandemic property boom.
With indications of potential official cash rate (OCR) cuts in early 2025, mortgage rates may drop further, allowing buyers to secure home loans at more favorable terms. This shift is anticipated to boost buyer confidence and increase housing demand.
2. Rising Unemployment and Economic Uncertainty
While lower interest rates may encourage more purchases, rising unemployment poses a risk to market stability. Economic reports indicate job losses have been increasing, with some projections estimating unemployment rates could reach 5% in 2025.
Households facing financial instability may delay property purchases, leading to reduced demand and potentially counteracting the impact of falling interest rates.
3. Global Economic Conditions and Inflation
External economic factors, such as global trade policies and inflation rates, also play a role in determining market movements. Uncertainty around international trade, particularly with major economic players, could impact consumer confidence and economic growth.
Inflation trends remain a concern, as persistent price increases in key markets like the United States, United Kingdom, and Australia could influence interest rate policies worldwide. If inflation remains high, borrowing costs may not drop as significantly as expected, affecting affordability for home buyers.
4. Slowdown in the Construction Sector
The building industry has been experiencing challenges, with reports of construction firms closing and job losses in the sector. This slowdown in new home developments can affect market dynamics in two ways: it may limit the supply of new houses, pushing prices up, but it could also reduce overall market activity if fewer properties are being bought and sold.
New Zealand’s housing shortage remains an ongoing issue, and long-term solutions, such as infrastructure planning and sustainable development, are essential to stabilizing the market.
Who Will Be Buying and Selling in 2025?
First-Time Home Buyers
First-time home buyers have been increasingly active in the market, accounting for a record percentage of property purchases in 2024. This trend is expected to continue into 2025, especially with interest rates dropping and more properties becoming accessible.
Investors and Property Sellers
Investors have been more cautious due to high borrowing costs, but as interest rates decline, they may begin re-entering the market. However, the pace of investor activity is expected to be gradual rather than immediate.
At the same time, the number of investors selling properties at a loss reached a decade-high level in 2024. Whether this trend continues in 2025 will depend largely on interest rate movements and broader economic conditions.
Final Thoughts
While forecasts indicate a potential rise in house prices during 2025, multiple factors could influence the market’s direction. Falling interest rates may encourage more buyers, but rising unemployment, economic uncertainty, and a struggling construction sector could counterbalance growth.
Monitoring economic indicators and market trends will be essential for those looking to buy, sell, or invest in property over the coming year.