This article is from the Australian Property Journal archive
A SOFT landing by the deflating Sydney and Melbourne housing markets may only delay bigger falls in the future, according to credit rating agency Fitch Ratings.
While it has tipped house prices rise in 19 of 22 highlighted countries over 2018 in its Global Housing and Mortgage Outlook report, growth is broadly expected to slow and risks will increase with mortgage rate rises on the horizon.
Floating-rate loans and borrowers refinancing to new rates would be the first effected, while long-term fixed-rate loans are less exposed.
“Arrears are at very low levels in most markets. They will only move in one direction as mortgage rates rise slowly due to higher policy rates and more expensive bank funding from the gradual unwinding of quantitative easing,” senior director, structured finance, Suzanne Albers said.
Home prices are expected to stabilise in Sydney and Melbourne and show modest declines in Oslo, Toronto and London.
“However, if corrections are only limited after several years of very high growth, the risk of large price declines in future downturns remains,” Albers said.
According to Fitch, Australian capital city home prices showed year-on-year (yoy) growth of 6.6% in the year to November 2017, down from 10.9% over the year to December 2016.
The increase was driven by Hobart (+12.7%), Melbourne (+11.0%) and Sydney (+7.7%). Melbourne and Sydney experienced slower growth while Hobart experienced faster growth than a year earlier. Continued record low interest rates have supported price growth while gross rental yields slipped to a record low of 3.6% as of October 2017. Tighter lending standards and foreign ownership restrictions have dampened price growth however.
Fitch expects Sydney and Melbourne house prices to stabilise in 2018, due to low interest rates, falling rental yields, increasing supply, limited investment alternatives and growing dwelling completions, partially offset by high population growth.
Norway, Greece and UK are the only countries not expected to see house price growth this year, although only the UK and Norway, together with Canada, are sitting in the lower stable/negative territory.
Fitch has a positive or stable/positive market outlook for seven of the nine Eurozone countries, which it said is due to expectations for strong economic growth and continued quantitative easing in 2018.
“As the unwinding of QE and normalisation of interest rates is only expected in the medium-term, so the highlighted challenges are likely to materialise later than in other regions.
“Fitch believes that in 2018 a combination of factors will be needed to constrain house price rises that have gone beyond market fundamentals and are primarily due to buyers’ expectations for further growth.
“Overheated markets slowed in 2017 when a combination of factors pressured prices, including lending limitations along with more local factors such as heightened supply and falling immigration in Oslo, multi-layered regulatory controls on home purchases and mortgage lending in China and for London, Brexit uncertainty plus the impact of buy-to-let (BTL) changes including lower tax deductibility of rental income.”
It said non-bank lenders make up six of the top 10 lenders by volume in the US in the US, which tend to have more flexible credit standards, are six of the top 10 lenders by volume. In the UK, NBL have heaped their attention on BTL lending where they are not subject to broader regulations that apply to deposit-taking institutions.
Australian Property Journal
