The motto of 2024 was ‘survive to 25’. Well, you’ve made it, so you can cross that off your to-do list. But with a tough year in the rear-view mirror, what can we expect in the year ahead?
Green Shoots Already Appearing
There are some signals that 2025 will be a more positive year. Inflation is under control, and interest rates are falling, which should give borrowers a bit more money in their pockets. At least one commentator thinks we’ll see sub-5% mortgage rates this year.
People who feel secure in their jobs may soon start spending and borrowing again. Plenty of Kiwis use their mortgages to pay for renovations, cars, boats, or private school fees, for instance. Some people also use revolving credit to help prop up their small businesses, so lower interest rates may even support business confidence.
A favourable outlook for the primary industries should also boost the economy this year. Dairy farmers will be looking forward to a forecast payout of over $10 per kilogram of milk solids – a new record. Horticulture, meat and timber also performed well in 2024 and look set to have a good year ahead.
What About the Housing Market?
House prices have been relatively flat since 2022, and fell for 10 consecutive months in 2024. By December, first homes were the most affordable they had been since October 2021. History tells us that markets move in cycles, so it’s due to swing upwards, and economists are duly forecasting price rises of between 5% and 8% in 2025.
Supporting rising prices will be a lower Official Cash Rate (OCR), predicted to fall to 3.75% in February and keep falling. That makes it easier to secure a home loan, enticing investors back into the market and also growing the market potential for more Zagga loans where the main banks can’t help.
But there are still some major drags on house prices. First, there’s a massive backlog of unsold houses, even before the usual post-Waitangi Day listings bounce. Buyers have plenty of choice, putting them in a position to negotiate hard on price.
Then, there’s the issue of job security. Nobody wants to take on significant new debt if they think they might lose their job. The sluggish job market is currently a real handbrake on the local economy, and it doesn’t look set to improve in a hurry. The construction industry is still in a trough, the outlook for retail is tepid, although, on a brighter note, the situation for the hospitality sector seems to be looking up.
It Feels like the Economy is Turning a Corner
New Zealand is a tiny blip in the global economy, and worldwide the outlook for 2025 is steady, albeit tense. That should help drag us out of the doldrums, and the general mood is that we’re already turning the corner.
At Zagga, we are confident about the year ahead for several reasons. First is that we’ve continued well through 2024 despite the flat market, so if the market grows even a little, we should have an excellent year. Second, falling interest rates means term deposits are less attractive, and investors are looking for higher returns. Our investments are currently returning between 8% and 10%, and we know our investors have an appetite for high-quality loans.
If you’re an investor or a borrower, what should you change heading into 2025? Well, nothing, really. Ideally you’ve got a long-term investment strategy and you’re not going to let your plans be derailed by day-to-day news headlines. If you’re not feeling confident about your next move, chat with your financial adviser for tailored advice based on your own personal financial goals. And if you need any assistance with borrowing or investing with Zagga, we’re here to help.