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NZ building approvals decline, again

NZ building approvals decline, again

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Building approvals buckle under higher interest rates, reduced immigration, and heightened investor concerns

The total number of building approvals issued in December fell 5.2%m/m (JPMorgan -3.0%), as the outlook for New Zealand's housing market turned from bad to worse. The report was undoubtedly weak with both the seasonally adjusted and trend series recording substantial declines over the month. The number of approvals, excluding the more volatile apartment permits, dropped a massive 11.3% sa over the month. Both the number and the value of building approvals continued to fall. The weight of high and rising mortgage interest rates, reduced immigration flows, and heightened investor concerns about the outlook for the housing market are taking their toll.

According to Statistics New Zealand, the value of residential building approvals was down 4.4%oya (or NZ$25 million). The trend in building values approved has been in decline since June 2007.

On a month to month basis it is hard to draw to many conclusions from the building approvals series, due to the inherent volatility in the data. That said, the series has been in decline since June 2007, and shows few signs of bouncing back in coming months. Although today's report has few implications for monetary policy in itself, it does support our view that the RBNZ has done enough in this tightening cycle to rein in New Zealand's housing market, and that sentiment in the market has deteriorated. The cooling housing market, and easing house prices, should help quell fears that domestically generated housing related (non-tradeables) inflation will rear its ugly head again in coming quarters (chart).


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