Reserve Bank cuts OCR again

Following the Reserve Bank’s (RBNZ) announcement yesterday Wednesday the 28th of May that it was reducing the Official Cash Rate (OCR) by 25 basis points to 3.25 percent, I thought you would be interested in knowing what impact I see this having now on the housing market and interest rates.

Yesterday’s OCR review is the 3rd of seven planned for this year. Most of the market had expected another 25 basis point cut yesterday with some banks pre-emptively adjusting their mortgage rates. It was interesting though to read acting Reserve Bank Governor Christian Hawkesby’s comments stating The Monetary Policy Committee (MPC) thinks it might be done cutting the OCR for this cycle. Hawkesby’s comments were amplified by the split committee decision. One member voted to hold the OCR at 3.5% to assess whether uncertainty was easing inflation pressures. The other five voted for the cut. Financial markets mostly judged yesterday’s statement as hawkish relative to expectations and are in the midst of trying to price out any chance of the cash rate falling below 3.00%. Currently mortgage rates are priced off the expectation that the RBNZ will cut rates to near 2.75%. This is no longer the case. It can still be reasonably expected that additional OCR cuts may occur in July & August. Just for a bit of context the average interest rate for new standard residential mortgages in New Zealand from December 2016 to December 2024 was 6.3% p.a. for a 1-year residential mortgage. By comparison, the average 5-year interest rate for a residential mortgage was 6.15% p.a.

Based on how the banks have reacted following yesterday’s announcement so far there has only been incremental reductions made against advertised mortgage rates with most of the 25 basis point cut been applied against floating rates. As I have mentioned previously with the impact of American tariffs currently causing a great deal of uncertainty in the offshore markets there is more evidence mounting now that we might be closer to the low point for interest rates than many think. Longer term fixed rates are primarily influenced by overseas cost of funds. Some borrowers remain relaxed about continuing to play the short-term game fixing for 6-12 months, but a growing number of people are now looking for the certainty that a longer-term fixed rate can offer. Again, borrowers need to decide what fixed term is best for them based on their own financial circumstances.

When we look at how the NZ housing market is currently performing there were 1200 fewer house sales nationwide in April than there were in March, however typically market activity slows in the cooler months. The Real Estate Institute’s latest figures reveal there were 6427 sales nationwide in April, a decline from March’s tally of 7640. Fewer properties were listed for sale in April compared with both March and the same time last year, and there was no annual change in the average days to sell figure at 42 days. As of April, there were 32,566 properties listed on the market for sale. That is up 6.5% compared to this time last year (+2,000).

In Auckland April sales were down 19.4% from March, but the seasonally adjusted figures showed an increase of 4.7%. Sales in Wellington and Canterbury were still down by 5.5% and 6.3% respectively once seasonally adjusted. Some real estate agents reported there were fewer attendees at open homes and fewer successful auctions market sentiment largely influenced by easing interest rates and concerns about job security. The national median price for a house is down 1.1% annually to $781,000 in April from $790,000 at the same time last year. It was also down 1.1% from March.

Seven out of the 16 regions had annual price increases, with Tasman and Southland recording the biggest increases, up 8.4% and 6.6% to $875,000 and $485,000. In the Auckland and Wellington regions prices fell 4.0% and 5.5% to medians of $1 million and $775,000, while Canterbury prices were up 4.0% to $697,000. Real estate agents report that buyers are seeking properties at lower price points, and they are willing to explore alternative options if they view prices as being excessively high. Property sellers need to be ready to adapt as the housing market evolves. The number of properties listed for rent is substantially higher. There were 23% more properties listed for rent in April 2025 vs 2024. It’s proving tougher to find a tenant than a year ago.

Please let me know if you would like to discuss the current mortgage rate that you are on with your bank or are needing assistance with finance to purchase a new property or to refinance.

Kind Regards

Simon