As the country firmly enters 2025, the housing market continues to navigate a landscape of shifting dynamics. Following a period of price corrections and fluctuating buyer confidence, recent data has signaled renewed stability and cautious optimism.

Lower interest rates, combined with easing inflationary pressures, have supported a gradual recovery in activity but an oversupply of listings has meant the return to normal is much more of a marathon than a sprint.

So as we look ahead, how will evolving economic conditions, geopolitical factors, activity and marketing trends define the property market’s trajectory in 2025?

INTEREST RATES

Chris Farhi, Bayleys Head of Insights and Data says the biggest thing to come out of 2024 for the housing market was the Official Cash Rate. August brought about the first cut to the OCR since March 2020, and the Reserve Bank has been slicing it ever since.

“Coming into 2025 that's put the market in a much better spot in terms of improvements around sentiment.”

“If you look at our sentiment surveys, our agents are seeing more activity and enquiries, but are typically not seeing any pressure on prices just yet.”

The Reserve Bank made three cuts to the OCR since August, each time slicing 50 basis points off the all important number. It currently sits at 4.25% with many economists predicting another supersize cut to come in February.

“The Reserve Bank has been projecting that the OCR would probably drop about another percentage over the next year or two to bring it down to about 3% which would see home loan rates around 5%.”

“However, one issue that we started to see late in 2024 was a bit more upwards pressure on offshore interest rates particularly with the changing government in the United States.”

Despite our best efforts, some economists are picking inflation could increase slightly this year, although it would still remain within the target band of 1-3%.

So, what will this all mean for retail interest rates?

Farhi says because the Reserve Bank has been so transparent on the direction it's taking the OCR; many banks are forward pricing their rates before the announcements.

“It means that you might get to the day of an OCR cut and not necessarily see a huge amount of change because a couple of banks might move early, and when they do they tend to move in a group.”

Of all the numbers though, Farhi’s believes the rate to watch is the five-year fixed rate.

“That’s the one that I always put a lot more weighting on compared to the one-year fixed rate. The reason for that is that with a five-year rate, you're getting a sense of how the bank is pricing things over a longer period”

“In setting their five-year fixed rates, the banks price in how they expect interest rates will move over the five year period, whereas with the one-year rate, they only have to price in what they expect will happen over the next 12 months.”

With that, Farhi notes the longer-term rates already appear to be plateauing, well ahead of any further cuts to the Official Cash Rate.

“Overall, while the reductions are boosting sentiment, it’s unclear how much more fuel in the tank we’ll get from the interest rate situation.”

HOUSE PRICES:

As most of us know house prices picked up significantly in 2021, and Farhi says a big correction extended across 2022 and 2023.

“The good news is that pretty much bottomed out around the middle of 2023, but the not so good news is that over the period since then, it's basically just been tracking sideways.”

“That’s because there's been a huge buildup of stock on the market. Coming into 2025 we had record levels of homes for sale on the market. So, there’s a lot of pent up inventory to get through.”

Farhi says many agents are also seeing a rise in enquiries from vendors looking to sell.

“So, I think there's actually a solid amount of stock still to come on the market too.”

That ultimately means that it could take some time for prices to start coming up.

“Because there's a lot of choice for buyers, there's less reason for them to increase their offers. So, until that supply starts to get a bit tighter, prices are unlikely to be pushed up by any large amount.”

“I would say we're probably likely to see most of this year spent clearing the stock.”

For that reason, vendors are being urged to meet the market when it comes to pricing.

“If you're looking to sell and you've got a reasonable offer, holding out to try and squeeze a little bit extra might not be productive. You're probably better to transact now, get yourself squared away and then jump into the market while there's a good selection of properties for sale.”

Farhi says the areas to watch are Auckland and Wellington given they had the most significant reductions from the pricing peak.

As for the areas bucking the trend?

“Those places really sit in the luxury market where stock is generally quite tight. That’s places like Omaha Beach where it's traditionally been quite hard to purchase in.”

“The South Island has also been quite resilient on pricing compared to the North. So ultimately the places that will see the biggest bounce from now, are the ones that had the biggest drop.”

AREAS TO WATCH:

Bayleys National Director of Residential Johnny Sinclair agrees that Auckland is the main area he’ll be watching closely.

“The Auckland market was very subdued last year compared to the rest of the country. There were ebbs and flows elsewhere but they generally had normality. So, what I'm very interested in is how the activity is going to build within Auckland.”

Sinclair says our biggest city makes up about a third of the housing market, and he’s predicting a lot of activity right across the area after such large periods of quiet.

“The entire market has been sucked dry, so I'm actually thinking that right across the board there's going to be a lot of movement and especially for the lower markets because interest rates are reducing, and affordability is a lot better.”

As for other markets, he says activity levels have been really positive.

“Buyers and sellers have been closely aligned, and transactions are being made.”

MARKETING TRENDS:

Sinclair says one of the biggest marketing trends for 2025 is the use of AI and the efficiencies it creates for salespeople.

“The ability to write property information memorandums and do submissions using AI is going to come to the fore, which means there’s more time for salespeople to be belly button to belly button with their clients, which is a huge positive.”

But while it’s a useful tool, Sinclair says it’s important that effort is made to maintain the authenticity of what’s being produced.

“Number one, you can't use the free AI ChatGPTs, you've actually got to pay for it because it opens you up to a lot more websites and resources. Number two, you've actually got to be able to use the prompts properly and talk to chat GPT in a meaningful way so that it can give you more accurate information.”

Sinclair says even with all that, it’s still important salespeople only use it as a foundation to build on.

“It’s only going to produce a base template for you to add in your expertise. I liken it to being given six bottles of beer, but you are the thing that brings and holds the six pack together.”

“And that's really critical, because AI is not going to know the nuances of a particular property, but if an agent uses the prompts properly, they can get the base product so much quicker.”

Sinclair says AI is also beneficial for creating imagery in the project making space and can fill in the gaps for properties that are marketed off the plans.

“AI is going to be able to contribute to that in some way, shape or form, whether that's through images or animation. What it can produce now is actually quite incredible.”

Another big marketing trend for 2025 is the use of targeted social and digital marketing.

“That’s the ability for us to really dissect and understand different buyer groups. This is not about targeting people as such but about targeting devices.”

“We've been trialing this now for the best part of nine months. We're getting huge success, and it's only going to get better.”

Sinclair says a prime example of this was an Equestrian Centre that was marketed in Hawkes Bay.

“We had the ability to identify key equestrian events in New Zealand, the UK and the US. We were able to collect that data and pinpoint market them. We were getting really good enquiry levels as a result of that, and this is over and above our normal advertising portals.”

ACTIVITY:

Sinclair says Bayleys is already seeing a boost in activity early into the year.

“We're going to be 25% up in February on our listing campaign numbers, our open home numbers have already increased, and our enquiry has already gone up too.”

“So there is definitely a big appetite where buyers and sellers are coming to the market and wanting to engage. But the sticking point for us is serviceability and that’s about interest rates, and how quickly those will come down and get passed on to the end users.”

Sinclair believes when it comes to buyers' things may be a little “sticky” from now until June, but auction numbers however are increasing.

“Out of the 640 listings that we're marketing in February, 55% of them are auctions. This time last year we would have had only 45%, so there is definitely a huge shift towards auctions, and that's only going to grow.”

“At auction you want to deal with an unconditional buyer, but right now sometimes you have to go to stage two and deal with conditional buyers and sell the property several days later. In a buoyant market this is less likely to happen.”

Sinclair expects we’ll see that two stage process a lot until the middle of this year.

“Then I think we're going to come to a normal market and where we're going to have a lot more people going unconditional, and therefore, there'll be a lot more that's going to go under the hammer.”

Overall Sinclair says the big thing about 2025 is that there’s a lot more confidence in the air.

“We've gone through a really tough 2024, and I think that people have had a good holiday and are ready to move ahead to the next stage of their lives.”

“I would say that the vibe for me is probably positivity, and a whole lot more positivity than what was seen last year.”