Fitch Ratings forecasts subdued home price growth around the globe over the next couple of years due to a combination of stretched affordability, more challenging macro-economic conditions and macro-prudential measures restricting mortgage eligibility. This is despite falling or very low mortgage rates, insufficient supply in major cities and stable or improved employment levels in most countries.
Political risks and their impact on economic growth and policy decisions are also affecting our housing outlooks with lingering US-China trade uncertainty, despite the recent easing in tensions, and China’s de-risking drive, Brexit, and developments around mortgage and housing policy beginning to take a toll.
The US-China trade dispute and China’s de-risking drive are weighing on global and national growth prospects, not only for the US and China, but also for their closest trading partners (such as Australia and Canada) and areas like the EU that are exposed to global trade.
“Weaker economic growth is a key driver of more modest home price growth forecasts. UK home price growth will continue to be affected by lingering trade ‘cliff edge’ risks until the new UK-EU relationship is negotiated. Although the newly elected Conservative government is expected to pursue a formal exit next month, there is more uncertainty about its ability to negotiate a UK-EU Free Trade Agreement by the end of 2020,” said Suzanne Albers, Senior Director of Structured Finance at Fitch.
In some countries, there is also uncertainty around mortgage and housing policy. The US and Canada are reducing the government’s role in mortgage funding while in Mexico and Colombia new national housing plans may increase government participation.
Of the 24 countries covered in the report we expect a nominal price fall only in Italy and Japan, due to Italy’s sluggish economy and Japan’s post-Olympics hangover and a decline in real prices in Brazil, Canada, China and the UK. We also forecast accelerating growth in Australia and Sweden, where prices are recovering from recent falls, as well as in New Zealand and Colombia.
We forecast low arrears levels for most countries covered in the report in light of flat or falling policy rates. However, we also have concerns about long-term low rates. Under a market stress, the limited scope for further policy rate cuts would mean that home prices would not benefit from substantial rate cuts as per recent downturns.
In this low interest-rate environment, lenders are also struggling to originate the volumes needed to defend profits, which has resulted in higher loan-to-values (LTVs) and longer maturities being offered in several European countries. Household debt levels remain the highest in Australia, Canada, Denmark, the Netherlands and Norway, making their economies more exposed to shocks and borrowers more vulnerable to downturns.
Longer-term, the push towards ESG investments may change housing investment and mortgage funding.
“Fitch expects climate change will permanently affect housing demand in areas that are already or could become more exposed to natural disasters, if they fail to attract new buyers or affordable insurance. Population redistribution to cities will continue, which will support cities’ higher price dynamism, but conversely ageing populations and developments in remote working and self-driving vehicles are likely to also drive regional prices,” adds Albers.
