This year is going to be an interesting one for many global property markets with many expecting a rise in sales and prices.
It is interesting to look at the figures in the latest Fitch Ratings global housing report as an indicator of what lies ahead. Indeed, for all 17 countries in the report, the mortgage and housing market outlook has either improved or remained broadly the same compared to 12 months ago.
This 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 improved most notably for markets in Ireland, Portugal and the UK, although with concerns about regional overheating in the latter. Fitch expects house prices in 2014 to increase modestly in the United States and remain broadly flat in Canada. The agency also forecasts higher home price growth in Australia, Germany and the UK due to low interest rates, sound GDP growth and growing credit availability. However, prices in 2015 could be dampened by rising rates.
It forecasts further price declines by end of 2014 in the Netherlands and Italy, and to a larger extent in Greece and Spain, pointing out that eurozone economic stabilisation should lead to steady prices in 2015 in the first two markets, and bottoming out in the latter two.
Fitch predicts that by the end of 2014 prices will decline by about 4% and 5% in Italy and the Netherlands respectively, 7% in Greece and 10% in Spain. This is slightly lagging the eurozone's economic stabilisation. House prices could be flat in 2015 in the first two markets, and in the same year begin to gradually flatten in the latter two.
In Ireland, a higher supply of foreclosed properties may exert pressure on house prices, according to the report and the benefits and risks from larger scale repossession activity in Greece will not yet be felt in the short term as the foreclosure moratorium has just been extended for another year until the end of 2014.
But in some major cities it could be another scenario. Fitch says that house prices relative to income in London and Tokyo are significantly higher compared with national averages in most countries. Prices to income for New York and San Francisco are considerably above the US average, although lower than for London and Tokyo. Although higher ratios in major cities can partly be justified by different supply/demand factors, we expect affordability to be stretched further over 2014, thereby increasing downside risk.
When it comes to lending, the next two years are likely to see growth in new gross lending in most countries driven by an economic recovery and supporting policies. The eurozone periphery will recover from a low base and Fitch forecasts cautious growth in the Netherlands, Germany, Australia and South Africa, as well as strong 2014 growth in the UK and Brazil.
In contrast, 2014 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 rates rise and refinancing activity reduces. In France, volumes should fall due to lower housing market and refinancing activity.
The report points out that prices in Brazil have more than doubled in real terms and trebled in nominal terms since 2008 mainly following massive credit expansion. But price increases have slowed since the end of 2011, but prices decreases are not expected because of demand supply imbalances.
South Africa experienced very strong price growth between 1997 and 2007, a few years earlier than Brazil. Prices fell significantly only in real terms in 2008. Fitch now expects healthy nominal growth of 5% to 6% a year over the next two years, in line with inflation. So overall the report is positive, with many markets likely to see growth in 2014.
