The 2025 market outlook explained: opportunities and risks for first-home buyers, and how investors are reshaping New Zealand’s housing market

As 2024 draws to a close, an increasingly complex picture is emerging for New Zealand’s property market. House price declines gradually stabilised in the second half of 2024, and the Reserve Bank of New Zealand expects a strong rebound in 2025, with annual growth potentially reaching 7.1%. Meanwhile, mortgage market activity reveals that investors are once again becoming a dominant force, while first-home buyers’ (FHB) market share is gradually declining. This new landscape offers hope of a recovery, but also carries potential risks.

2024: fading policy effects and housing market fluctuations

Looking back at 2024, property market trends were largely shaped by both policy changes and economic fundamentals. At the end of 2023, the new government introduced several investor-friendly policies, sparking short-term optimism and a brief rise in house prices in early 2024. However, this sentiment did not last, as high interest rates and uncertainty in the labour market quickly dampened demand. Figures released by the Reserve Bank of New Zealand show that house prices fell by 0.2% over the year, with particularly pronounced declines in major cities such as Auckland and Wellington.

Despite the subdued market overall, some areas continued to stand out. Herne Bay’s median house price, for example, reached NZ$3,570,000, up 4% year on year. Blaketown and Kaikoura in the South Island led the country with increases of 17% and 13% respectively. Their performance shows that the market is not uniformly bleak: opportunities exist in particular locations.

2025: hopes and concerns for a housing market recovery

Looking ahead to 2025, the Reserve Bank of New Zealand forecasts a strong rebound in house prices in the second half of the year, with annual growth potentially reaching 7.1% before peaking at 7.4% in March 2026. This upward revision reflects the potential benefits of falling interest rates and recovering economic confidence.

On the policy front, the Reserve Bank of New Zealand began gradually cutting the official cash rate (OCR) in the second half of 2024, lowering it from 5.5% to 4.25%. Major banks quickly followed with mortgage rate cuts, giving the market a boost. However, challenges in the economic fundamentals remain. Labour market uncertainty and rising unemployment could continue to restrain household demand for housing. In other words, the recovery may not be comprehensive: house prices could rise without overall transaction volumes reaching historical highs.

A reshuffling of the lending market: investors return in force

Lending market activity in 2024 offers further clues about future trends. Figures show that total mortgage lending reached NZ$7,534,000,000 in October, the highest level since December 2021. Investors accounted for 22.7% of lending, their highest share since February 2021. This trend became apparent in August, when investor borrowing first exceeded that of first-home buyers, with the gap widening further in the following months.

This shift shows both investors’ keen awareness of the market recovery and their swift response to lower interest rates. By comparison, first-home buyers’ market share fell from 25.2% at the end of 2023 to 20.7% in October 2024. Although the number of first-home buyer loan commitments reached 2765, the highest in almost a year, it remained below the 3068 commitments made to investors.

A divided market: can first-home buyers still catch this recovery?

A clear divide is emerging in the market: returning investor confidence is driving increased activity, while first-home buyers are gradually taking a secondary role. This poses a challenge to the overall stability of the recovery. If investors continue to dominate, a rapid rebound in house prices could make it even harder for first-home buyers to enter the market.

Over the longer term, a healthy market needs to balance the interests of all parties. Relying solely on investors to drive growth could increase market volatility, particularly during periods of economic uncertainty.

Welcoming 2025 with cautious optimism

New Zealand’s property market could reach a turning point towards recovery in 2025, but that does not mean every problem will be resolved. Falling interest rates, recovering house prices and increased market activity may appear positive, yet concerns remain beneath the surface. For investors, the key will be finding long-term value during the recovery. First-home buyers will need to adapt quickly in a competitive environment and seize opportunities to enter the market. Policymakers and market participants alike need to recognise that a recovery does not simply mean a return to the market’s peak. In a changing environment, flexibility and foresight will be the keys to success for property investors.