House prices to rise again, says Fitch

Australian house prices have grown faster than in any other major economy and are forecast to match growth in 2014 even in countries recovering from the global financial crisis. But low interest rates, high incomes and only modest employment declines mean Australian houses are still relatively affordable, says credit ratings agency Fitch.

Australian house prices have more than tripled since 1997, accelerating past other countries as the crisis hit in 2009. Prices fell about 7.4 per cent between late 2010 and May 2012, but have grown 11.8 per cent since then. Growth in the past 18 months has been more rapid in parts of the United Kingdom but much slower growth in other regions there mean it has not matched Australia’s recent growth.

Australian houses are the second least affordable after the UK on both house price -to-income ratios and compared with per capita gross domestic product. But Fitch expects both economies to support further house price growth, rising 4 per cent in Australia in 2014 and 5 per cent in the UK.

“Australian cities appear expensive relative to those in other countries,” says Fitch’s Global Mortgage and Housing Outlook. “The ratio has, however, been in the same range for over a decade.”

But it expects affordability to get worse as prices outpace income growth.

A separate consumer sentiment survey out on Wednesday is less positive about the outlook, with the influence of house price rises on confidence wearing thin. The Westpac Melbourne Institute Survey of Consumer Sentiment found expectations income would rise in 2014 fell 2.5 per cent this month. “The household sector is currently experiencing the weakest labour income growth in a decade,” JP Morgan economist Ben Jarman said.

The Fitch report shows much of the resilience in Australian house prices has not been driven by high rates of lending in recent years, with home loan growth relatively flat until the past six months. Instead, the main influences have been a relatively buoyant economy, and housing supply not keeping up with population growth.

Several other countries are also experiencing house price hikes, particularly resource -rich countries such as Brazil. Record low interest rates as economic conditions improve is driving others such as the UK. But worries about overheating property markets appear more acute than in Australia.

The lift in house prices in the southeast of England, which is paralleling growth in Australia, is also driven by a lack of supply as well as super -low interest rates. But the report says affordability is deteriorating fast there as incomes have quickly been left behind. Canada, which like Australia has benefited from the resource boom, has had a sustained rise in house prices over a decade, but this is tailing off due to over -leveraging.

While home lending dropped sharply in many countries. In Canada there has been no let -up. The debt to disposable income ratio in Canada is about 180 per cent. In Australia it is about 134 per cent.

Financial Review – 23 Jan 2014


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