NZ home sales in May at 16-year low

Source : Business Times - 12 Jun 2008

New Zealand home sales slumped 53 per cent to a 16-year low last month, reinforcing speculation that the central bank will cut interest rates from a record high.

The number of houses sold dropped to 4,373 last month from 9,285 a year ago, the Real Estate Institute of New Zealand Inc said in a report to Bloomberg News yesterday. That’s the fewest since December 1991.

A cooling property market adds to signs that the economy is slowing as retail spending drops, employers cut workers and construction declines.

Reserve Bank governor Alan Bollard kept the official cash rate at 8.25 per cent last week, and said that he was likely to lower borrowing costs this year as moderating domestic demand helps ease inflation pressures.

‘The pace and depth of the current housing and economic correction suggest to us the central bank should have been easing already,’ said Shamubeel Eaqub, an economist at Goldman Sachs JBWere Ltd in Auckland.

‘The outlook for the residential property sector remains challenging.’

The Reserve Bank forecasts that the economy would grow 1.2 per cent this year, which would be the slowest pace in a decade.

Thirteen of 15 economists surveyed by Bloomberg News expect Mr Bollard to cut interest rates in the third quarter. Two forecast a reduction in the fourth quarter.

New Zealand’s currency touched a 20-week low of 75.03 New Zealand cents yesterday. The five-year bond yield was unchanged at 6.52 per cent.

Demand for housing is slowing after immigration fell to a six-year low and investors reduce buying on expectations of falling prices and weaker rental returns, Goldman’s Mr Eaqub said.

The median house price slipped 1.4 per cent from a year ago to NZ$345,000 (S$357,700), the Real Estate Institute said yesterday.

Prices were unchanged from April. Mr Bollard said last week that house prices would fall over the next three years.

Adding to signs of a cooling economy, retail sales fell 1.2 per cent in the first quarter. Construction and the number of people employed also declined in the first three months of 2008.

The median time it took to sell a house increased to 49 days, the second longest on record, from 44 days in April, yesterday’s report showed. Days-to-sell reached 50 in February.

The growing amount of time needed for sales suggests that prices should fall further to clear a large stock of unsold residences, said Goldman’s Mr Eaqub. — Bloomberg