Building takes a huge leap forward
In the biggest quarterly jump in a decade, national building work grew almost 10 per cent in the three months to the end of September, according to official figures.
The figures were much stronger than the 5.5 per cent bank economists expected.
The Christchurch rebuild, both homes and commercial buildings, is getting a head of steam faster than expected and could help drive the overall economy faster than expected in the September quarter.
There was also a surprising boost to home building in the Auckland region, up to its highest levels in four years. Commercial building work also rose strong in the quarter.
But the construction sector is still recovering from a huge plunge last year. The volume of house building hit an 18-year low late last year, but the trend has since risen about 18 per cent.
ASB Bank economists said the latest construction figures suggested the economy grew 0.5 per cent in the September quarter, up from ASB's previous forecast of 0.2 per cent.
"It is encouraging to see rebuilding gaining a firmer footing, particularly non-residential construction, given the weakness over the first half of 2012," ASB said.
Westpac said construction may be a "lone bright spot" in an otherwise weak September quarter for the economy, especially for manufacturing. Westpac was sticking with its forecast for 0.3 per cent economic growth for the quarter.
The latest building "work put in place" figures follow last week's forward-looking building consent figures, which showed October permits were up about a third on the same month last year. The consent figures show planned but not completed work.
As well as the massive rebuilding programme in Christchurch, house building is being boosted by extremely low interest rates and growing activity in the house sales market, especially in Auckland. Floating home rates are as low as 5.65 per cent, while some short-term fixed rates are under 5 per cent.
The Reserve Bank is widely expected to leave the official cash rate on hold at 2.5 per cent today, with the rate expected to stay put till late next year. That means floating mortgage rates will remain low for some time yet.
BNZ chief economist Tony Alexander suggests that borrowers should either sit on a floating rate, or fix for a year and look for a three to five-year fixed rate of between 5.5 per cent and 6 per cent to lock in a decent part of their home loan at a low rate.
The Reserve Bank has kept the official cash rate on hold for 13 reviews in a row after massively cutting rates when recession and the global financial crisis hit.
Those earlier OCR rate cuts keep flowing through to borrowers' effective loan rates, as people roll off old fixed rates and move on to cheaper new rates.
Reserve Bank figures show the average effective mortgage rate is now down to just 5.78 per cent, including fixed and floating rates. That is down massively from the effective mortgage rate of more than 8.8 per cent in late 2008.
The construction sector is extremely sensitive to those interest rate levels and its recovery will be underpinned by low mortgage rates, ANZ Bank economists said.
A stronger building sector is also expected to be one of the main factors in a growing economy in the next couple of years.
Meanwhile, ASB Bank economists estimate that all building activity in Canterbury was up about 34 per cent in the three months to the end of September, on a seasonally adjusted basis.
Canterbury accounted for about half of the rise in both homes and non-residential building work in the quarter. But house building in the upper North Island, especially Auckland, is growing fast too. Building consents in the Auckland region have recently hit a four-year high.
Residential building in Wellington rose about 5 per cent, according to Westpac.
Value of building work put in place September quarter: All building activity: Up 9.6 per cent (total value $2.9 billion).
Residential: Up 7.1 per cent ($1.6b).
Non-residential: Up 12.4 per cent ($1.3b).
Canterbury accounted for about half the increase in both sectors.
Residential: $5.78b (including additions and alterations), down from $8b in 2008.
Non-residential $4.57 billion, down from $5.2b in 2008.
Source: Statistics NZ