Downturn In Migration Will Shake Housing Market

When looking at my favourite second-tier economic data-point, net-permanent
migration, it is hard to find any external support for New Zealand's
faltering housing market. Annual immigration growth has fallen to a six
year low. Net-permanent migration for the month of January was just 60 -
with permanent departures of 6,570 and arrivals of 6,630. As previously
noted by JPMorgan, there is a significant correlation between large swings
in net-permanent migration and housing market activity
Furthermore, there is a nice correlation with consumption growth.

The upshot from today's report is that the downturn in net-permanent
migration will take the rug out from beneath an already shaky housing
market. JPMorgan expects house prices in New Zealand to fall 5% in 2008.

Looking to next week's RBNZ monetary policy statement, the probability of
another tightening in this cycle has all but diminished - as a result of
the deteriorating housing market and impact of the drought on agricultural
production. That said, the deteriorating outlook for short-to-medium term
inflation will keep the RBNZ on hold for the remainder of 2008.

ends