Report identifies factors that could influence the market's future performance
CoreLogic has released its latest Property Vulnerability Index (Index) to analyse how an economic downturn or changes in market conditions impact properties across the country.
In the last year, property prices across the country have increased by 27.8%, with housing affordability plummeting to the worst levels on record – compelling the government and the Reserve Bank of New Zealand (RBNZ) to step in and slow down the market to “sustainable levels.”
The Index took into account significant economic and housing measures with weightings allocated based on their potential influence on future property market performance. It also assessed areas' performance and risk in the event of a more significant downturn in the property market.
The results showed that many of New Zealand's most vulnerable markets are smaller centres located in the central North Island. By contrast, the upper South Island and Canterbury regions look less vulnerable than most of the country.
The Index also found that Otorohanga and MacKenzie are the two most vulnerable territorial authorities in the country, while Waimakariri and Timaru appear to be the least vulnerable. Of the six main centres, Auckland is the most vulnerable, and Christchurch the least vulnerable.
CoreLogic NZ head of research Nick Goodall said several factors influence the future performance of the property market, which vary from region to region.
The Index focused on housing affordability (25%), Centrix credit reporting (20%), investor activity (15%), demand/supply rebalance (15%), Stats NZ local employment and economy data (15%), and Trade Me Property demand data (10%).
“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,” Goodall said.
CoreLogic NZ chief property economist Kelvin Davidson said the country's housing market has been in a significant upswing phase for more than a year.
“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,” he 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 1% to 2% 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.”