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Home prices to see decline on lower growth: Fitch Ratings

Home prices to see decline on lower growth: Fitch Ratings
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December 08, 2022 (MLN): Higher mortgage rates will weigh heavily on demand and home prices through 2023 and into 2024, Fitch Ratings in its latest report unveiled.

The surge in the cost of living will also reduce demand as some consumers delay home purchases.

Australia, Canada, Denmark, the Netherlands, the UK, Germany, the US, and France, which had some of the largest home price increases since the onset of the pandemic, will see some of the greatest price declines given rate pressures.

The areas within these countries that had the steepest run-up in prices are likely to see the largest correction.

The report further noted that the nominal home price growth will continue in Mexico, Brazil, and Colombia, but at a slower pace, as prices did not rapidly increase over the past couple of years and housing remains affordable. Real home prices in Latin America will decline, but less so than in other regions.

“We expect home price changes in China to be contained given the tightly regulated housing market and stable mortgage rates,” it said.

Borrowers will continue to face reduced affordability even with home price declines in several countries due to substantial home price gains during the pandemic and falling discretionary income combined with increases in mortgage rates both on a nominal and real basis (the latter reflects rate rises higher than those implied by medium-term inflation expectations).

Even in countries where Fitch forecasted nominal home price growth in 2023, growth is unlikely to keep pace with the strong pace of inflation, resulting in real home price declines.

The rebound in real home prices is likely to take longer than that of nominal home prices given persistent inflation, it said.

Meanwhile, the countries with quantitative tightening will have less liquidity in the banking system, which will increase the cost of credit and restrict loan availability, particularly for lower credit-quality borrowers.

It is pertinent to mention that the real home prices in several markets had grown to record highs in 2022, but could rapidly decrease with demand if interest rates continue to increase significantly. Effects may be felt well beyond 2023 if marginal demand is wiped out with a deeper recession.

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Posted on: 2022-12-08T13:37:04+05:00


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