Building industry warned to brace for downturn

Builders are being warned to brace themselves for a 20% fall in residential building activity over the coming year, as the Reserve Bank continues to ratchet up interest rates – 1.25 percentage points since the beginning of the year.

Infometrics, one of the country’s leading economic forecasters, described today’s announcement as being more bad news for property investors, homeowners, and builders.

“The punishing interest rate rises, combined with slower population growth, are already visible in the real estate market,” said Infometrics economist Gareth Kiernan. Sales of existing houses have slumped 23% over the past 12 months, and house prices increased just 1.9% over the June quarter – the worst result in 2½ years. In Nelson, one of the star performers last year, prices are falling, signalling a turning point in the number of new houses required.

Today’s lift in the official cash rate will mean that the cost of servicing an average sized floating mortgage has increased $187 over the past year . Borrowers rolling over a one-year fixed rate mortgage will be staring at a $116 increase in monthly interest payments.

“Builders and building supply companies should be planning on a sharp downturn in residential building work over the next 12 months, as the higher interest rates and slower population growth squeeze demand for housing.”