Squirrel sees slow progress as RBNZ holds rates steady and inflation ticks up
Squirrel’s July update paints a picture of cautious optimism in New Zealand’s housing and economic recovery, with interest rates holding firm, house prices still soft, and structural challenges persisting.
“After the high interest rates we’ve endured over the past few years, I’ve always said we'd be in for a slow and gradual recovery,” the update said.
Despite earlier OCR cuts totaling 2.25 percentage points since August 2024, the Reserve Bank of New Zealand (RBNZ) chose to hold the cash rate steady at 3.25% in its July 9 decision, delaying a further cut many expected.
Squirrel said that while the economy is showing some signs of life—particularly in agriculture and exports – relief hasn’t gone far enough for most households.
“Interest rates haven’t come down enough—there hasn’t been enough relief – for households to get enthusiastic about the idea of opening their wallets and spending money again.”
Tariffs and uncertainty weigh on investment and inflation
“There’s a whole lot of ‘wait and see’ going on out there right now,” Conway said.
The Reserve Bank now expects headline inflation to fall to around 2% by early 2026, with more OCR cuts possible if medium-term inflation pressures continue to ease.
Squirrel echoed the cautious tone, adding that a more neutral OCR target should remain the priority.
“The rest of us will eventually feel the benefit, but it’s proving to be a longer and harder process than many anticipated,” it said.
House prices near bottom, long-term growth outlook revised
Squirrel suggested the latest downturn has likely brought house prices back to “where they should’ve been” after years of unsustainable growth. Though listings remain high and activity is still muted, the worst may be over.
“As activity picks back up and that excess stock eventually clears out, that’s going to bring a bit more stability back into the equation and help to underpin any further falls.”
Squirrel forecast long-term price growth to average closer to 3.5% annually, in line with income growth.
“While this latest correction has been painful, it was very much needed,” it said.
Regional divide persists as South Island outpaces North
“The further south you go, the more optimistic people are… Wellington is just more pessimistic. The city has been brought to its knees and it's been struggling to shake the pessimistic vibe,” Kiwibank chief economist Jarrod Kerr said.
While regions like Southland and Otago posted stronger housing and employment figures, areas such as Northland and Taranaki continued to decline. Kerr also called on the RBNZ to “put their foot on the accelerator” and stimulate growth with a further cut to 2.5%.
Read the Squirrel property market update on LinkedIn.
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