Fitch: House Price Affordability Strained in Major Global Cities

Reuters

Jan 21 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says in its latest annual Global Housing and Mortgage Outlook report that while relatively high house price to income ratios in major global cities (such as London, New York, San Francisco and Tokyo) versus national averages can partly be justified by different housing supply and demand factors, we expect house price affordability in some cities to be stretched further over 2014 given near term expected house price increases.

Historically, house price growth has been more pronounced in metropolitan areas around the world while growth elsewhere is more closely linked to income growth and inflation. It is commonly believed that larger cities will continue to attract above-average GDP, income, population and house price growth. a€œWhile we share this view at Fitch, we do not believe cities are immune from cyclical house price movements and their consequences. Longer-term average annual house price growth cannot excessively disconnect from incomes,a€� says Andre Dahlkamp, Senior Director in Fitcha€™s EMEA RMBS group.

More generally, Fitch expects 2014 house prices to increase in Germany and the UK due to low interest rates, sound GDP growth and improved credit availability. House prices are likely to increase modestly in 2014 in the US and Australia and remain flat in Canada. We expect further house price declines in the Netherlands and Italy, and to a larger extent in Greece and Spain. Eurozone economic stabilisation should lead to steady prices in 2015 in the Netherlands and Italy, while Greece and Spain are likely to see prices bottom out in that year. a€œFor all seventeen countries we evaluated, the mortgage and housing market outlook has either improved or remained broadly the same compared with twelve months ago,a€� says Gregg Kohansky, Managing Director in Fitcha€™s EMEA RMBS team. a€œThis is partly in step with the economic recovery for a number of countries but also as a result of government and central bank policy changes which are boosting supply and demand for residential mortgages and housing. The outlook has improved most notably for markets in Ireland, Portugal and the UK,a€� Mr. Kohansky added.

Given the economic recovery and supporting policies, the next two years are likely to see growth in new gross mortgage lending in most countries. The eurozone periphery will recover from a low base. We forecast cautious growth in the Netherlands, Germany, Australia and South Africa, as well as strong 2014 growth in the UK and Brazil. In contrast, 2014 mortgage lending volumes in Canada may fall slightly due to government measures to moderate the housing market. Lending volumes are likely to decline in the US as mortgage rates rise and refinancing activity declines. In France, volumes should fall due to lower housing market and refinancing activity.

Fitch expects mortgage arrears in Spain and the Netherlands to continue to rise in 2014/15. The speed of the increase is slowing in Ireland and Greece, where non-performing loan volumes should drop in 2015/16. While serious delinquencies in US RMBS legacy portfolios are still high, they should continue to gradually decrease. Mortgage performance for US post-crisis originations will remain very strong due to more prudent mortgage underwriting standards. In most other countries, arrears and defaults should stay stable or improve slightly.

Fitcha€™s "Global Housing and Mortgage Outlook" report includes forecasts

Link to Fitch Ratings' Report: Global Housing and Mortgage Outlook

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