The legacy of the global crisis in Europe’s housing markets is fading, Fitch said in 2017 forecasts yesterday (Thursday), but it highlighted that fundamentals are overpowering regulatory intervention, even if unsustainable price rises in Australia, Canada and elsewhere are seen moderating.

A combination of extremely low borrowing costs, readily available credit, steady economic growth and limited housing supply are providing “ideal conditions” for rapid home price rises in several markets. Among those with “unsustainably rapid” rises are New Zealand and Norway as well as Australian and Canada.

“In Canada, household debt reached a new high of almost 168% of disposable income in 2Q16 and, for the first time, breached 100% of GDP and is higher than the UK and US household debt burden,” Fitch noted, as an example.

However, the rating agency expects the rate of price increases to moderate this year, with Canada slowing from 12% in 2016 to 3%. House price gains in Australia’s eight capital cities are seen slowing from 10.9% to 3%, while New Zealand is expected to experience a slower rate of 5% this year.

Fitch cited regulatory measures as a factor in slowing New Zealand’s market and noted a similar effect in Singapore, but said that, in general, fundamentals are overpowering widespread macro-prudential interventions in the operation of housing and mortgage markets.

“Actions to dampen unsustainably rapid price rises, such as mortgage lending restrictions, have proven relatively ineffective against a fundamental excess demand for home purchases,” it said.

House price growth in the EU was at the same time spoken of encouragingly by Fitch.

“The legacy of the global financial crisis in Europe’s housing markets is fading, although the pace of the recovery continues to vary between and within countries,” it said. “Home prices will rise again this year in Spain, Portugal, and Ireland, and stabilise in Italy.”

The only core European market in which it does not expect house prices to grow this year is the UK, which is also the only country for which its outlook has deteriorated.

“We forecast static prices and gross new mortgage lending this year, reflecting stretched home purchase affordability, Brexit-related uncertainty, and changes to stamp duty and tax relief and stricter underwriting guidelines for buy-to-let landlords,” the rating agency said.

Position in home price cycle and typical market characteristics

Source: Fitch Ratings