NZ and Auckland house prices 2025: What can we expect from the market?

Property pundits are tipping house prices to rise in 2025, yet there are many factors that could upset the predictions. Photo / Ted Baghurst

Kiwi house prices might have fallen through most of 2024, but crystal ball-gazing property pundits are tipping a turnaround next year.

Some, such as ASB bank’s economic team, are tipping 2025 prices to jump by as much as 10%, while others like the Kiwibank economists are tipping a gentler rise of 5%-7%.

Other pundits still, such as analysts CoreLogic, are cautious at putting any number on future growth.

Those backing a rise in house prices believe it will be powered by the expectation that interest rates will continue to fall next year.

Yet many pundits writing 12 months ago also believed that prices would’ve risen this year - when for the most part they went in the other direction.

And just like 12 months ago, there are shadows hanging over the current housing market.

These include international uncertainty over trade tariffs and China’s economy mixed with already-high house prices and financial trouble in the house building industry.

So what’s led pundits to make their latest predictions? Here are a few factors to keep an eye on in 2025.

Home loan interest rate falls

The Reserve Bank’s move to begin cutting interest rates in 2024 is cited by most pundits as the “game changer” that will bring a turnaround.

Falling interest rates allow home buyers to borrow money cheaper and have been a big stimulus for past price rises, such as the post-Covid pandemic boom when they jumped to record highs.

“That’s the turning point,” Kiwibank chief economist Jarrod Kerr earlier told property website OneRoof about the interest rate cuts.

“We can sort of put the flag in the ground and say ‘hey, this is the bottom’.”

CoreLogic chief economist Kelvin Davidson also said interest rate falls can have a strong and sudden impact on prices.

He noted how the Reserve Bank hinted during its November meeting that it may aggressively cut the official cash rate (OCR) at its next meeting in February - potentially further driving down interest rates.

Loan Market mortgage adviser Bruce Patten said he expects that home buyers will be able to get loans under 5% next year.

Unemployment rising

Standing as a dampening force against falling interest rates, however, has been steady job losses during 2024.

People who have lost jobs or are at risk of losing jobs typically don’t have the confidence to buy new homes, thus reducing demand in the market.

CoreLogic’s Davidson said recent economic data showing a drop in retail spending and how filled jobs had dipped for a seventh consecutive quarter in October, which illustrated how many families were doing it tough.

Brad Olsen, principal economist with Infometrics, said the data could mean unemployment hits 5% in 2025.

Uncertainty and inflation

Global uncertainty about China’s economic recovery and possible future trade wars could also throw a spanner in the works for future house price growth, according to independent economist Tony Alexander.

He said the prospects for China – New Zealand’s biggest export destination – were looking poor.

At the same time, statements by newly elected US president Donald Trump that he will put tariffs of 25% on goods from Canada and Mexico could trigger a trade war.

“Such policies fail” and could help keep inflation higher, Alexander said.

Inflation in the US, United Kingdom and Australia had also been proving harder to tame than was earlier expected and if this continued it could weigh on home loan borrowing costs, he said.

Building industry slowdown

The downturn among home building companies “has been deep and prolonged, and isn’t over yet”, CoreLogic’s Davidson said.

Herald articles through 2024 reported on a number of building companies going bust and job cuts throughout the industry.

A slowdown in new builds could help keep house prices higher, yet it would also drag the market down by reducing sales, given many Kiwis will find buying unaffordable, Kiwibank’s chief economist Jarod Kerr said.

He said the nation’s housing crisis is still a long way from being solved and told OneRoof the only way it can be tackled is if a long-term view to infrastructure building is taken.

“We need people with the ability to think long term and deliver long term. They should be thinking in 15 to 30-year chunks, not three-year bites,” he said.

Who will buy and sell?

CoreLogic’s Davidson called 2024 the Year of the First-Home Buyer.

They managed to buy 27% of all homes sold - a record high share, he said.

That’s well up from other years when first home buyers have bought less than 20%.

Part of their increased share has come from a reduction in investors buying, many of whom have found it more difficult to generate cash flow due to high interest rates, Davidson said.

In fact, the proportion of investors selling for a loss climbed in the third quarter of 2024 to hit the highest level in a decade at 11.1%, he said.

Looking ahead to 2025, Davidson expects more investors will start buying as interest rates drop but they won’t be rushing back into the market.

That means first home buyers should still be able to snag an above average share of new purchases for the next six to nine months, he said.