We’ve officially made it out the other side of the shortest day of the year! The full thaw might still be a while off—but it’s on its way.
And, funnily enough, that’s a pretty good analogy for what’s happening in the New Zealand economy right now, where green shoots are starting to show.
Here’s the latest on what’s been happening with interest rates, the New Zealand housing market, and the domestic and global economy over the last few weeks.
What’s the outlook on interest rates over the coming months?
We’re getting very close to the bottom; whichever way you slice it.
With the Official Cash Rate (OCR) down at 3.25%, we’re now just a fraction off the Reserve Bank’s estimated ‘neutral’ point of 3%. At this stage, we expect another 0.25% cut on 9 July, which’ll get us across the line.
There’s still an argument that the OCR might get a little lower than that—maybe 2.75% if we’re lucky.
But with the economy now showing signs of stabilising—exports and agriculture are performing well, and things are feeling more positive in the South Island and regional NZ—that’s probably about the best we can hope for.
(Side note: I’m not sure what they’re on in Otago, but they seem happy. And Canterbury’s not far behind.)
What that means for mortgage rates… Short-term rates will come down a bit further with this next OCR cut, but there’s really not much left in it.
The best one-year rate we’re seeing is 4.89%, and that’s a really good rate. Consumers are reaping the benefits of the fierce competition between banks vying for market share.
At best, I see the one-year rate bottoming out at around 4.50%, and we’re already pretty much in that vicinity.
Longer-term interest rates are a whole other kettle of fish.
Longer-term rates are much more heavily impacted by what’s happening overseas.
There’s a complex web of factors playing out at the moment which look likely to be inflationary for the global economy—and could actually push longer-term interest rates up moving forward.
1. Firstly, there’s the US tariff situation.
After months of shifting positions, we still don’t know what final form Trump’s tariffs will take, which has left a big question mark over exactly how they’ll impact global inflation levels.
On the one hand, tariffs make trade more expensive. That, plus a general move towards deglobalisation (i.e. taking manufacturing out of cheaper economies back to “home ground”), will be inflationary.
On the other, US tariffs could actually be deflationary for New Zealand, as China looks for other markets to sell into, to fill the gap left by the American market.
2. The challenge of US debt levels.
The US has the highest national debt level of any country in the world—$36.2 trillion as of May 2025, with a significant portion of that (roughly $9 trillion) owed to foreign governments.
Japan and China have traditionally ranked as the first and second largest investors in US foreign debt, but Trump’s aggressive tariff policy (55% on Chinese goods and between 10% and 25% on Japanese goods) now poses a potential threat to those relationships. China has already sold off some of its share of US debt in recent months as it looks to further diversify its portfolio.
So, with a massive tranche of US treasuries coming up to maturity, there’s a bit of a question of “well, if China and Japan aren’t buying them, who is?”.
To my mind, there’s a good chance that the US may be forced to raise longer-term interest rates to attract other investors to fill the gap. The implications for global inflation, the stock market, and interest rates would be significant.
3. The impact of the escalating Iran-Israel conflict on oil prices (and what that could mean for the global economy)
Oil prices had already spiked following the latest outbreak of tensions between Iran and Israel in early June.
Now, with Trump having waded into the conflict, that’s sent them climbing even further—and added a whole new layer of complexity and uncertainty to the situation.
There are two key drivers behind what’s happening with oil prices right now. The first is the fact that Iran is one of the world’s leading oil producers, the second is the growing possibility that tensions could lead to the closure of the Strait of Hormuz a key transport link for roughly 20% of the world’s gas supplies.
If Iran does close Hormuz (something it’s threatened to do in direct response to US strikes) that would be inflationary for the global economy, too.
What should mortgage borrowers be thinking about in this environment?
Splitting your loan across a mix of shorter and longer terms is still a good idea.
That way, you get the benefit of having some of it at lower short-term rates (which still have the potential to track a bit further downwards) and the certainty of having some of your loans locked in for longer.
For those feeling more risk-averse or if interest rate certainty is crucial for your situation, you might want to fix more (or all) of your mortgage longer-term. If you can get a three-year rate below 5%, I’d say go for it.
How are things tracking with house prices?
We’re in this weird situation right now, with a three-speed economy going. The South Island is doing well, and the rural economy is starting to pick up, but major centres like Auckland and Wellington still have a ways to go.
That means the recovery will be mixed. But things are stabilising, with the South Island leading the way.
The Christchurch market, in particular, is benefiting from strong levels of domestic immigration, as people flee the high cost of living (and housing, in relative terms) in Auckland and Wellington. Business confidence is much stronger down there, too, which is helping to fuel consumer confidence and employment growth.
Auckland and Wellington will get there eventually; it’s just taking longer.
I expect house prices to remain flat for the next 18 months. There’s scope for a recovery, particularly in Auckland and Wellington, where they fell so much, but it won’t be massive.
Looking at the big picture, the global outlook is shifting, and uncertainty is becoming the norm.
We’ve had good growth and relative stability over the last 40 or 50 years, driven by globalisation and cooperation.
But moving forward—with geopolitical tensions playing out on multiple fronts, and this broader push towards deglobalisation—things feel a little more up in the air.
The other big wild card in the mix is AI.
AI technology is evolving at a massive rate of knots, the likes of which we’ve never seen before.
From the early days of ChatGPT (launched in late 2022), there’s now a wealth of freely available generative AI tools that can write, code, create music, plan trips, and answer just about any question you put to them.
Their work isn’t perfect, but it’s a good enough starting point.
The next phase—agentic AI, involving systems that can make decisions and act independently to achieve specific goals—is just around the corner.
So, if we’ve come that far in three (ish) years, what will AI be doing for us in five years and ten?
Of course, AI has considerable benefits, but I think there will come a time—not all that long from now—when these advancements will start to significantly impact jobs.
As AI gets smarter, and its outputs become more reliable and accurate, that could ultimately be hugely deflationary on the services side of the global economy.
It’s exciting, but also scary. And it’s something to watch.