The New Zealand property market has been one of the strongest in the world recently with house prices increasing 27.8 per cent in the past 12 months.
However, the price increases have started to cause some issues with affordability and only last week the Reserve Bank of New Zealand (RBNZ) was the first major central bank to increase official interest rates.
A new report has started to analyse the potential impact of these types of events and determine what areas could potentially be at the most risk should the property market soften.
The Property Vulnerability Index from CoreLogic analyses how an economic downturn or change in sentiment or market conditions could impact different segments of the property market in New Zealand.
Th index takes into account data on housing affordability, Centrix credit reporting, investor activity, demand/supply rebalance, Stats NZ local employment and economy data and Trade Me property demand data.
The analysis has found that Otorohanga and MacKenzie were the two most vulnerable territorial authorities while Auckland is the most vulnerable of the main centres.
According to the CoreLogic analysis, Waimakariri and Timaru are the least vulnerable at risk of downturn, while Christchurch appears to be the best positioned to weather any market correction.
CoreLogic NZ Head of Research Nick Goodall said there are some key reasons some areas are more vulnerable to market correction.
“There are a broad range of factors which will influence the future performance of the property market and these will vary in their relevance from region to region,” he said.
“The results show many of the country’s most vulnerable markets are smaller centres located in the central North Island.
“The upper South Island and Canterbury regions look less vulnerable than most of the rest of the country.
“It’s also important to note the areas expected to underperform may not necessarily see values fall; but in relative terms they face the greatest economic risks which makes them more vulnerable to a downturn.”
“Following the 2020 lockdown, confidence rebounded, unemployment fell, mortgage rates were cut, and deposit requirements eased, alongside other official measures which played a role in the strong performance of the housing market,” Mr Davidson said.
“Of course, nothing can go up forever and the already stretched position for housing affordability across NZ has further deteriorated in the past year.
“The government and RBNZ have introduced various measures to try and curb skyrocketing housing values, which alongside rising mortgage rates, should certainly prove a strong headwind to price growth.
“Should average annual property value growth across NZ fall to one to two per cent across the regions, which is around what we’re currently seeing in monthly growth, there would be some areas above that figure and some below – potentially with values actually falling as we move into the next phase of the cycle.”