Why Does It Feel Like We’re Being Watched?
If you’re a homeowner, or thinking about getting onto the property ladder, consider this theory: New Zealand is an experiment. The Reserve Bank of NZ hiked interest rates quicker/faster/farther than anyone thought possible, and now our economy is paying the price. It’s too much. Yes, it was required to deal with the inflation they [mostly] caused, but it almost feels they’ve gone too far in the other direction. What if New Zealand is being used as a canary in the coal mine? Are we just a gauge for other central banks to monitor?
What if NZ is an experiment to measure how much pain our economy can handle when interest rates stay higher for longer?
While that might sound dramatic, the reality for everyday families juggling mortgages and rising costs is pretty dreary right now. All of this is because high interest rates combined with high costs, have forced some businesses to close, and many others to lay off staff. Surely a ‘soft-landing’ calls for the pilot to pull up (flare) right before touch down?
Instead of easing back on interest rates, our central bank is pulling cutting the power and aiming straight for the tarmac.
Let’s Review the Playbook
Our Reserve Bank didn’t muck around—they hiked rates hard and fast to fight inflation, and that hit homeowners right in the pocket. Mortgage repayments went up, borrowing power went down, and the dream of home ownership got a bit tougher for many. The good news? We’re probably at peak pain now, with rate cuts expected on the horizon. But don’t expect a return to the “cheap money” days any time soon. Yes, we learnt pretty well after March of 2020 that super low rates = super crazy times in the property market, but that’s likely a one-off event. Even as rates start to ease, the relief should be gradual, and most experts agree we’re in for a period of steady, not spectacular, change. Watch this space of course – anything can happen.
Next, there’s the property market itself. After a rough patch, house prices are showing signs of life, but we’re not heading back to the days of double-digit growth just yet. Most predictions for 2025 are in the 2-6% range. This might be enough to keep things ticking over, but not enough to spark a frenzy . If you’re a first-home buyer, this is great news. There’s a bit more borrowing power thanks to lower rates and relaxed lending rules, but just remember, it’s always more expensive when you move with the heard. When the heat returns to the market [properly], it’ll feel safer to buy, but it’ll be more expensive. Investors, meanwhile, are sitting on the sidelines, waiting for better yields and a bit more certainty before jumping back in. Watch this space also, because they can be a massive force to push up prices once the property cycle progresses to the next stage.
Finally, there’s the bigger picture. Even though the official numbers say we’re out of recession, it doesn’t feel like it at all. Wages (which are already distorted from immigration) aren’t keeping up with costs, mum and dad property investors are thinking of selling now, at any price, and redundancies are picking up pace. The banks still love property lending (mainly because homes are seen as safe collateral) but that doesn’t make it any easier for small business owners or anyone trying to get ahead without a house to back them up. It’s a bit of a two-speed economy: exporters are doing well, but urban areas and everyday consumers are still waiting for things to pick up. Finally, although the politics can be a bit off-putting, what unfolds in the US can have a real impact here in New Zealand.
Right now, our central bank is largely adopting a ‘higher for longer’ strategy. This is why the NZ economy, and by extension our property market, is important for other central banks to watch. The know the settings which can crush an economy.
And For The Everyday Person?
While it might feel like we’re stuck in a bit of a funk, New Zealand’s property market, and economy remains remarkably resilient. In fact, if you’ve ever seen someone die slowly, it’s amazing how much punishment the human body can endure before giving up. If you’re a homeowner, hang tight and keep your eyes/ears open. Better times are coming. If you’re looking to buy, focus on what you can control. This means try to understand your budget, your income security (not just now due to recession, but in the future due to AI), your goals, and your long-term plans. The world might be watching us as a test case, but at the end of the day, it’s your home, your family, and your future that matter most.
