Tauranga is one of the least vulnerable cities to a downturn in the property market and Rotorua is not far behind, new research shows.
CoreLogic NZ's new Property Vulnerability Index had analysed how an economic downturn or change in market conditions may impact property.
Whakatāne, Christchurch, Hastings, Manawatū, Marlborough, Waimakariri and Timaru were also some of the least vulnerable.
Rotorua and the Western Bay of Plenty scored slightly higher, while Ruapehu, Kaipara, Kawerau and Ōpōtiki were among the most vulnerable.
The vulnerability index took into account a range of economic and housing measures, with weightings allocated based on their potential influence on future property market performance and provided an indicative assessment of an area's performance as a result.
The six categories include data on housing affordability (25 per cent), Centrix credit reporting (20 per cent), investor activity (15 per cent), demand/supply rebalance (15 per cent), Stats NZ local employment and economy data (15 per cent) and Trade Me Property demand data (10 per cent).
CoreLogic NZ's chief property economist Kelvin Davidson said Tauranga was one of the least vulnerable cities to a market downturn.
Davidson said Tauranga had a slightly high percentage on interest-only mortgage and credit activity, but low arrears.
"Credit behaviour was key."
The city also had a minor lift in investor activity and low yield on offer and a good economic base with strong employment growth, he said.
The country's housing market had been in a significant upswing phase for more than a year, he said.
"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.
But, he said, nothing could n go up forever and the already stretched position for housing affordability across New Zealand had 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 New Zealand fall to 1-2 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."
Tauranga-based chief executive of Mortgage Lab Rupert Gough said a major factor in housing vulnerability was demand, which was not going away any time soon.
"It's in our DNA to buy property."
Permanent Tauranga residents had fairly stable jobs, therefore, the city's slightly higher percentage on interest-only mortgage and credit activity was a symptom of the first stage of lockdown still making an impact.
"It's not a sign of money management distress."
Tauranga also had a high population of retirees, which suggested more people were either mortgage-free or had relatively low mortgages, he said.
Gough said people really assessed their financial positions after the first lockdown and had since started to feel a lot more stable, and there were constant requests for mortgages.
"Overall interest has still been at record highs.
"But we're finding it's getting harder to get finance. People are having to be squeaky clean and get control of their debt."
Opes Partners New Zealand Limited resident economist Ed McKnight said it was no surprise Ruapehu was ranked down the list with its small population and vulnerability to tourism.
McKnight said Kawerau also used to be seen as affordable but had seen big price increases in the past year and with shrinking population growth "we're not going to need a quarter of the houses that are there".
Western Bay and Tauranga had some of the fastest income growth compared to places like Kawerau, which made the city a "pretty robust" property market, he said.
"It builds the picture of two very different stories."
Recent lockdowns had not seen "the bottom fall out" of the market as people tended to save more and seriously considered renovating or moving to bigger properties, he said.
"The question is what is going to happen once we get out?"
Managing director of the Realty Group Ltd, which operates Eves and Bayleys, Simon Anderson said desirability to live in Tauranga, industries like the Port of Tauranga, horticulture and the growth of the Tauriko Business Estate boosting employment made the city less vulnerable.
"All that says volumes for its ability to be more resilient to a downturn than other areas.
"It provides a protective layer over Tauranga."
Westpac NZ industry economist Paul Clark said its latest regional roundup highlighted the Bay of Plenty's strong economic performance.
Horticulture, forestry, construction, and record-high house prices, were key drivers of economic activity and will continue to underpin the region's future performance, he said.
Clark said house price growth nationwide was expected to slow as interest rates and borrowing costs rise and the Bay's housing market was likely to be similarly affected.
"That said, Tauranga's housing market should continue to perform relatively well, given a strong economic outlook, favourable employment prospects, and ongoing demand for property."
The latest data from the Real Estate Institute of New Zealand showed the Bay's median house price climbed 24.2 per cent to $878,000, up from $707,000 in September 2020.
Additionally, Tauranga City ($990,000) and Whakatāne District ($695,000) reached record median highs and Rotorua's median house price was now $650,000.