N.Z. Construction Declines, House Prices Fall to Four-Year Low

By Tracy Withers

March 9 (Bloomberg) -- New Zealand construction work contracted for a fourth straight quarter and house prices fell by the most in at least four years as a prolonged recession and rising unemployment stall the property market.

Construction adjusted for inflation fell 6.5 percent from the third quarter, Statistics New Zealand said in a report released in Wellington today. House prices dropped 8.9 percent in February from a year earlier, Quotable Value New Zealand Ltd., the government valuation agency, said in a second report.

House prices are falling and building approvals have dropped to a record as a recession and job losses keep consumers out of the property market. The shrinking economy will prompt Reserve Bank Governor Alan Bollard to cut the benchmark interest rate at least 50 basis points this week, according to economists.

“This is pointing to a large fall in fourth-quarter gross domestic product,” said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington. “Everything is pretty much tied to the job market. Unless you are feeling confident about your job prospects, you aren’t going to build a house.”

Residential building declined 13 percent, the biggest drop in eight years, the statistics agency said. Non-residential work gained 1.6 percent after rising 5.2 percent in the third quarter.

Bollard has cut interest rates by 4.75 percentage points since July after the economy began contracting in the first quarter of last year.

Retail Spending

The governor will cut the official cash rate by 50 basis points to 3 percent on March 12, according to six of 13 economists surveyed by Bloomberg News. Four expect a 75 point cut and three expect a 100 point reduction. A basis point is 0.01 percentage points.

Fourth-quarter retail sales declined 0.6 percent, according to a government report last month. Economists are also awaiting reports in the next week on net exports and manufacturing before completing their economic growth forecasts.

The government publishes its fourth-quarter GDP report on March 27. ANZ National expects the economy shrank 0.9 percent in the quarter, Goh said.

Home building is slumping as the prospect of job losses spook consumers. The unemployment rate will rise to an 11-year high by early 2010, according to government forecasts. Last week, Sealord Group Ltd., the nation’s biggest fishing company, said it will fire as many as 180 factory workers to cut costs.

House prices have been falling since July and the February decline was the most since the series began in 2005, Quotable Value said.

House prices need to start rising to kick-start the construction industry, said Goh. He expects home building won’t recover until the second half of 2009.

“It’s going to be a slow slog,” he said. “We might have found a bottom in house prices, but we need to see that confirmed.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.