Building consents for new houses have fallen to their lowest level since January 2001, says Statistics New Zealand.
Figures for June show only 1362 new units were authorised last month, with the value of residential consents dropping $236 million to $455 million and non-residential consents falling $69 million
to $313 million, compared with the same month last year.
Of New Zealand's 16 regions 15 had fewer consents issued and only one region, the South Island's Tasman district, stayed the same.
ASB economist Jane Turner said the sudden decline had come as a surprise.
"We were expecting consent issuance to eventually decline to these levels over the next few months, in line with previous declines in REINZ house sales, but today's drop on consent issuance was a considerably sharp adjustment."
Turner blamed the lower consent level on the glut of homes for sale, weakening prices, higher financing costs and fewer new migrants coming to New Zealand.
But she said she would be surprised if the level dropped further. "We expect consent issuance to languish around low levels for the next few months; but any further deterioration in consent issuance will be a surprise."
Other economists predicted a further slide in building consents.
UBS economist Robin Clements said there was a risk of a further 15 to 20 per cent drop in consents as residential investment dropped off.
"Real residential investment fell 5.4 per cent in [the first quarter] this year and the dwelling consents data to date suggest there is likely to be another couple of quarters of similar declines still to come.
Clements predicted residential investment could drag on growth the rest of this year and possibly into 2009.
ANZ National economist Philip Borkin said he also expected to see a further 15 per cent decline in consents. But Borkin said the commercial building sector, which had until recently held up strongly, would now be the one to watch.
"With mezzanine-related finance all but drying up and the activity outlook of builders from recent business surveys showing sharp declines, the risk is for a downward correction."
