Fitch Ratings is forecasting subdued home price growth in 2020-2021 due to stretched affordability, more challenging economic growth prospects 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.
In its Global Housing and Mortgage Outlook - 2020 report, the firm stated: “We expect a nominal price fall only in Italy and Japan, due to Italy’s sluggish economy and Japan’s post-Olympics hangover. We forecast accelerating nominal and real home price growth in Australia, as prices recover from recent falls, as well as in Colombia, New Zealand, Sweden and Brazil (with Brazilian real home price growth still negative). Slowing or flat nominal price growth is common elsewhere and there are several countries where we forecast a decline in real prices (Brazil, Canada, China and the UK).”
Mixed impact from persistent low rates
Flat or falling policy rates contribute to the forecasts of low arrears levels for most countries. However, Fitch also has 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.
Home prices in some major cities are likely to continue or start to overheat if low rates and quantitative easing prompt higher demand than new supply. Lenders are also struggling to originate the volumes needed to defend profits, which has led to higher loan-to-values (LTVs) and longer maturities being offered in several European countries. Finally, high household debt levels, which are more sustainable in periods of low rates, remain in several countries like Australia, Canada, Denmark, the Netherlands and Norway, making economies more exposed to shocks and borrowers more exposed to downturns.
Political risk weighs on housing outlooks
Lingering US-China trade uncertainty, despite the recent easing in tensions, and China’s de-risking drive continue to weigh on global and national growth prospects
for the US and China but also for their closest trading partners (such as Australia and Canada) and areas like the EU and Latin America that are exposed to global trade.