OCR held at 2.75%: Breathing room for New Zealand’s housing recovery
 | Author: Kieran Trass Head of Research, Staircase. Property cycle analyst and author of five books on the New Zealand market. |
The Reserve Bank has held the Official Cash Rate at 2.75%, resisting another increase in borrowing costs. It was a close decision with four committee members voting to hold, while three wanted an increase to 3.00%.
For New Zealand’s housing market, the decision provides some breathing room. It does not provide certainty about where interest rates go next.
That distinction is important. A household considering its next property purchase needs more than an affordable mortgage payment today. It also needs confidence about its income, its financial commitments and what tomorrow might bring.
Today’s hold avoids adding another hurdle. It does not remove the ones already slowing the recovery.
Why the Bank chose to wait
Annual inflation eased from 4.1% in June to 3.7% in September. That was an improvement, although it remains above the Reserve Bank’s target range.
The majority favoured allowing more time to assess the previous two OCR increases. Wage growth remains subdued, and medium term inflation expectations have stayed stable. However, the Bank forecasts inflation reaching 4.4% in December, largely reflecting fuel prices. All committee members still considered further tightening likely, depending on the outlook.
So why pause when inflation could rise again?
Because the decision is not simply about the next inflation number. It is about whether higher costs become persistent price and wage increases, and how much additional restraint is required to prevent that.
A temporary increase in petrol prices and an economy generating sustained inflation through excessive spending are different problems. Treating them identically risks applying more pressure than necessary.
The hold is a decision to gather more evidence, not a declaration that the inflation problem has disappeared.
The housing market has little excess momentum
September’s national housing figures help explain why caution is appropriate.
REINZ reported sales down 11.6% from a year earlier, available stock up 10.7%, and its House Price Index down 1.5%. Sales declined in 11 of the 16 regions. This is not weakness confined to one city.
There are stronger markets. All four South Island regional House Price Index series recorded annual gains, while all eight North Island series remained below their year earlier levels. A single national interest rate therefore reaches markets with different degrees of momentum.
The economic backdrop helps explain those differences. The Reserve Bank describes strength in export related activity, but subdued domestic demand outside exporting centres.
For housing, the implication is straightforward, stronger national export earnings do not automatically mean every household feels more secure about taking on a mortgage.
The recovery needs those gains to spread into employment, incomes and confidence. Holding the OCR may give that process more time, but cannot make it happen overnight.
First home buyers are not the missing ingredient
One of the most revealing findings in recent housing research is that first home buyers are already purchasing in substantial numbers.
Cotality’s analysis showed approximately 25,000 first home purchases across an annual market of roughly 90,000 transactions. That approaches their purchase numbers during the 2021 boom, when the overall market was much larger. Their strength is not simply an inflated market share caused by other buyers disappearing.
We are not waiting for first home buyers to return. Many already have.
Existing homeowners considering a move are a different story. Cotality identified these purchasers as the largest contributor to the decline in annual sales activity between December and August. Economic uncertainty and concerns about job security were encouraging more households to stay put.
For those households, avoiding another OCR increase is helpful but there is a difference between being able to afford a move and feeling sufficiently confident to make it.
There is also an important qualification in that returning movers generally bring both a purchase and a property to sell. Their return could improve turnover without automatically reducing available stock.
A busier market would be encouraging. It would not, by itself, necessarily establish that a boom was approaching.
An unchanged OCR does not freeze mortgage rates
Borrowers should also avoid assuming that today’s decision locks mortgage rates in place.
Fixed mortgage pricing reflects wholesale funding costs, international financial conditions and expectations about future OCR decisions. Those influences can change even when the OCR does not.
For someone considering a purchase or refinancing, the practical question remains the actual borrowing terms available, rather than the OCR headline alone.
Today’s hold should therefore be understood as the absence of an additional policy increase, not a promise that every borrower’s next mortgage rate will be lower.
More time for the recovery
At Staircase, our assessment remains an extended housing recovery, rather than an imminent nationwide boom.
The distinction between recovery and acceleration is important. A market can be working through its recovery phase while turnover remains subdued, available stock takes time to sell and households hesitate over their next move.
Today’s decision does not transform those conditions. It does, however, avoid adding another immediate obstacle.
The next meaningful improvement will be broader confidence translating into completed purchases, alongside better absorption of available stock.
The Reserve Bank has given the recovery more time. Whether that time turns into stronger housing activity will depend on households gaining confidence, not simply on the OCR standing still.
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