As a result of market dislocations post economic crisis, home ownership levels face challenges as large foreclosure pipelines are expected to displace owners in some countries such as the US, Spain, and Ireland, whilst new lending remains well below pre-crisis levels, particularly in the Eurozone periphery.
Stretched affordability, especially in Australia and parts of the UK and a growing preference for renting, are also having an impact, says the annual Global Housing and Mortgage Outlook report from Fitch Ratings.
The percentage of home owners in the US has fallen to 65% from 69% in 2006 and the report suggests that the steady decline has been mainly driven by foreclosures, mortgage scarcity and unemployment.
In the UK, home ownership has dropped even more sharply, falling to below 65% from 73% in just six years. On-going affordability pressures in Australia are likely to continue to make renting attractive relative to buying, with the ratio of homeowners falling to 67.5% in 2012 from 70.7% in 2000.
It also points out that tight credit availability and stretched affordability should continue to lead to falling home ownership levels in many countries around the globe with a generation of first time buyers largely priced out of the market.
Supporting factors for the expected improvement in the mortgage market include better macro-economic conditions, low interest rates, and for some markets, improvements in affordability.
The main emerging threats are the prospect of rising interest rates for some markets and deflationary pressures in the Eurozone. ‘Gradual rate rises are expected in the US and the UK, but the Eurozone’s mostly high sensitivity to rate changes will not be tested anytime soon. Australia, Hong Kong, and Singapore exhibit relatively high rate sensitivity, but balancing factors such as economic performance mitigate this,’ the report explains.
It also says that the effects of the housing and economic crises have been long lasting, particularly in the Eurozone periphery, where the outlooks are weakest. Fitch expects moderate house price growth of around 2% in the Netherlands, US, UK and Canada, albeit with some concerns regarding sustainability in the latter.
UK regional growth trends may actually reverse as the South East slows and the North picks up due to stretched affordability in the South East. Eurozone corrections should continue next year in Greece, France, Italy, and Belgium.
Policy actions in Hong Kong and Singapore are targeting a soft landing but Hong Kong risks a sharp price correction given its significant affordability stretch. Fitch expects Australian house prices to continue to rise albeit at a lower rate than the past 12 months.
Gross new mortgage lending should rise in all but seven countries; the US, France, Greece, Portugal, Hong Kong, New Zealand and Belgium, as consumer confidence generally returns, but policy measures, borrower caution, tight credit and low savings in some markets may be a constraint.
The report adds that the UK and the Netherlands could see annual increases of up to 10% due to improving housing market liquidity while US volumes will fall again as refinancing activity drops on rising rates. Anticipation of rate rises is driving a global trend to fixed rate products in many markets. Lending in the Eurozone periphery is likely to stay weak.
It also explains that policy supports for housing and mortgage markets put in place post crisis are starting to be removed, and prudential measures now target overheating markets in the Asia Pacific region, Canada, the UK and perhaps Ireland in the near future. While such measures reduce long-term risks, they put pressure on home prices and lending.
