OCR call a ‘big injection’ for housing market

Thursday, 20 February 2025

House sales and prices will start going up after the Reserve Bank’s official cash rate cut, but there will not be the market frenzy seen in the post-Covid boom, experts say.

The Reserve Bank cut the OCR by 50 basis points to 3.75% on Wednesday, and it also indicated it expected further rate cuts to come significantly faster than it had previously signalled.

Banks wasted no time responding, with BNZ, Westpac, ASB, Kiwibank and ANZ all moving to cut interest rates shortly after the announcement.

Bayleys Auckland chief executive Lloyd Budd said the cut was a “big injection” of confidence for the housing market, which had been subdued for some time.

Westpac had already moved to a 4.99% rate, which was exciting as it had not been possible to talk about sub-5% money for some years, he said.

“It will have an immediate impact on the market.

“Because if you have been planning to bid at an auction over the weekend, now you can bid a bit harder and higher because you know you can lock in money at a lower rate for a few years.”

Consumer confidence had been growing recently, he said. For example, last weekend a record 1980 groups of people went through Bayleys open homes in Auckland alone.

“In contrast, over the last three months we were seeing about 1200 groups a weekend on average, so that’s a near 50% increase.

“Yes, it’s only one weekend, but I think the increase was because people were anticipating the OCR cut, and also because there’s lots of good stock on the market.”

The cut would boost that momentum, and it could also lead to some of the stock currently for sale being taken off the market as lower rates meant they did not have to sell their property, Budd said.

“With further cuts expected, we will see increased confidence in the buying cycle, and with improved economic conditions likely in the back end of the year, that will only lead to sales and prices going one way.

“But the price growth will be at a more sustainable pace: not the 15% seen post-Covid, more like a healthy 5% to 7%.”

Ray White New Zealand chief executive Daniel Coulson agreed the cut would instil further confidence in the housing market this year.

The cut was so widely expected that many had begun acting on their real estate plans in January, he said.

“Nationally, across the Ray White group, we have seen a 26.8% lift in sales compared with 12 months ago.

“We also saw unprecedented demand from homeowners looking to capitalise on a recovering market, with a January record of 1955 listings, an increase of 31.7% on last January.”

Auction clearance rates had also improved, with January clearance rates at 57.1% and an average of 3.7 bidders per property, he said.

“While there are many that expect conditions in the market to continue to improve over the coming year, we are still some way off the frenzy experienced during the last market peak.”

Realestate.co.nz chief executive Sarah Wood said there were 32,412 homes on the market in January, and that was a high number compared to the last decade.

It would take some time for those listings to move through the market, but the OCR cut and banks’ rate changes would bring people who were looking, but not transacting, into the market, she said.

“It will stimulate demand, and boost buyer confidence.”

More people had been searching on the Realestate.co.nz site recently, perhaps in anticipation of the cut, she said.

“The number of active users on the site in January was up by nearly 12% from the same time last year, and the cut should help that momentum continue.”

In the Monetary Policy Statement accompanying the OCR announcement, the Reserve Bank said 90% of mortgages were currently being fixed for six to 12 months.

Woods noted that 50% of mortgages were fixed for six months or less, or were floating, but said it was hard to say if people would make changes to their fixing behaviour because they expected further cuts.

“People that are wanting to buy and/or sell have lots of different reasons for doing so, so they come to the market when they need to. That’s likely to determine the decision to transact rather than a rate change at this point.”

CoreLogic chief property economist Kelvin Davidson said the Reserve Bank’s forward track for the OCR projected a trough in the range of 3-3.25% potentially being reached by the middle of this year rather than mid-2026.

The ultimate trough in the OCR had not shifted, but we might get to it a bit quicker than previously expected, he said.

“While the OCR is not the only thing that determines rates, if it was held at that level it would be reasonable to expect rates could settle around the 4.5% to 5% bracket.”

For mortgage borrowers, the key message was that interest rates had further to fall yet, although the drops to come could be a bit slower or smaller than those seen to date, especially since banks were cutting in advance of the announcement, he said.

“It will be interesting to see whether the recent stampede towards borrowers taking floating and short-term fixed rates goes into reverse at some stage in 2025, with the focus potentially shifting back towards longer-term fixed rates again.”