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NZ trend in residential work is still downward - ANZ

FXStreet (Bali) - Mark Smith, Senior Economist at ANZ, shares his take on NZ building consents for Oct, noting that the trend in residential work is still downward despite Oct rebound.

Key Quotes

"Total residential and ex-apartment residential issuance rebounded from September lulls, but the trend in residential work is still downwards, pointing to a late 2014/early 2015 lull in activity, before activity in the sector is expected to strengthen later in 2015. Residential construction cost inflation remains high but this is likely to be tolerated by the RBNZ given a benign general inflation backdrop."

"October residential consent numbers rebounded 8.8% sa m/m, with a more sizeable 12.6% sa rise in ex-apartment issuance. The trend in issuance is still down (-5.7% 3m/3m, -5.8% 3m/3m ex-apartments, -6.3% 3m/3m floor area of new issuance). In the absence of a concerted pick-up in issuance, it suggests a pending lull in residential sector activity from late 2014/early 2015, although migration-assisted lifts in the resident population are likely to provide impetus for strengthening activity thereafter."

"Activity in the sector is strengthening from historically low levels. Our estimates suggest the level of issuance is around 6% below historical averages as a proportion of the housing stock, as compared to a 16% shortfall 12 months ago. Annual residential issuance firmed to 24,363 consents, the highest since May 2008. Ten of the 16 regions reported a climb in issuance compared to a year ago, including Auckland, Wellington and Canterbury."

"October non-residential consent values eased 3.4% sa m/m (-6.2% 3m/3m), with the floor area of issuance down 0.9% 3m/3m. The outlook remains positive for the sector given support provided by earthquake reconstruction, earthquake strengthening and with anecdotes pointing to strengthening demand for commercial prioperty."

"Pricing pressures remain: Residential construction cost inflation moderated to a 5.7% annual rate in the three months to October, the lowest since June but still elevated in the context of 1% nationwide CPI inflation. The key for OCR settings is that these pressures in this sector do not become more generalised. So far, so good."

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