Property market reversal: how much bargaining power do buyers have left? Should they prepare for another surge in house prices?

Interest rate cuts: the housing market’s strongest catalyst

 

Interest rate cuts are generally seen as an important driver of a property market recovery. Before this, New Zealand’s property market had endured several subdued years, with house prices undergoing a marked correction. Following the OCR cut, mortgage rates fell rapidly and buyer activity increased. Barfoot & Thompson managing director Peter Thompson recently highlighted positive signs in Auckland’s property market in August, suggesting the market is gradually recovering.(Click to view) Figures show the company sold 889 properties across Auckland in August, its highest August sales volume since 2021. New listings totalled 1454, the highest August listing volume since 2017. Meanwhile, the median sale price was NZ$952,500, slightly below the July median and 3.1% lower than a year earlier.

 

Barfoot & Thompson managing director Peter Thompson

 

Thompson said: “We are about to enter a new market season. Sellers and buyers have reached a consensus, and market prices are stabilising. The further mortgage rates fall, the more active the market will become.”

 

More encouragingly, this trend extends beyond Auckland. According to realestate.co.nz chief executive Sarah Wood, property searches and saved listings increased significantly nationwide after the OCR cut, indicating that many prospective buyers were already ready to enter the market. Properties selling quickly also reflect recovering demand, with listing numbers in August falling below their lowest level in 6 months and many properties selling within a month of being listed. These signs all suggest the market’s recovery is gathering pace. Meanwhile, she noted that the national average asking price remained stable at around NZ$800,000. “Sellers can capitalise on increased buyer interest, while buyers still have plenty of choice. Both buyers and sellers can benefit from relatively stable prices.”

 

As the market rebounds,

should buyers prepare for another surge in house prices?

 

CoreLogic chief property economist Kelvin Davidson

 

However, falling interest rates do not necessarily mean house prices will immediately rise sharply. CoreLogic chief property economist Kelvin Davidson takes a relatively cautious view. He noted that although mortgage rates had reached an “important turning point” and were expected to fall further to around 5.5%, a sharp rise in house prices was unlikely given recession risks and labour market uncertainty. Price corrections in Wellington and Christchurch provide clear examples: prices in these cities fell by 21% and 7.1% respectively, suggesting the market’s recovery may be slower and more gradual.

 

Independent economist Tony Alexander also emphasised in his recent survey that although buyer demand was rising, there were no signs yet of widespread house price increases. This was partly because supply was also increasing. Survey data showed more sellers requesting property appraisals, indicating they were preparing to sell while the market was active. This could increase the number of properties available for sale, temporarily restraining price growth.

 

Supply and demand will determine the housing market’s direction

 

Independent economist Tony Alexander

 

The future direction of house prices depends not only on interest rate changes but also on supply and demand. Although listing numbers have declined somewhat, supply remains sufficient to meet demand. This means house price growth may remain constrained even if demand increases.

 

Alexander’s analysis also noted that although more buyers were entering the market, many remained concerned about their employment situation. Data showed that 48% of real estate agents said buyers were worried about their incomes. In addition, more than 50% of agents said buyers were having difficulty obtaining finance. These factors could constrain buyer demand to some extent, affecting house price growth.

 

House prices expected to rise 6% next year,

as buyers’ market advantage may fade

 

Although current market conditions are relatively favourable for buyers, this situation may not last much longer. As market activity increases, particularly as more investors and owner-occupiers enter the market, house prices may gradually begin to recover. Alexander noted that it remained a buyers’ market, with buyers holding the upper hand in negotiations. However, this could change over the next 2–3 years, with the market gradually shifting in sellers’ favour.

 

Overall, although current market conditions appear conducive to house price growth, the broader economic environment and policy changes remain important factors in determining price trends. For buyers planning to enter the market, now may offer a relatively favourable window to secure a property while taking advantage of current low interest rates. However, potential market volatility also warrants attention. In particular, with the economy yet to recover fully, house price growth may take time. After all, market conditions often change faster than expected, and buyers really do have limited time left to consider their options.

 

 

ANZ economist Henry Russell

 

ANZ economist Henry Russell recently said: “Although house prices may remain weak in the short term, we expect market activity to recover towards the end of this year and into 2025 as the effects of lower mortgage rates gradually emerge.” He also noted that although the market still faced pressure from rising unemployment and a weak economy, the impact of interest rate cuts remained uncertain, as did whether market confidence would recover faster than expected. He forecast house price increases of 6.0% next year and 5.0% in 2026. The Reserve Bank of New Zealand cut the rate by 25 basis points at its August monetary policy meeting, with further cuts of 50 basis points expected this year and another 125 basis points in 2025.