The U.S. and other countries around the world should prepare for regulators to tighten up on lending standards in the coming year—and that’s not the only change that’s coming.
Fitch Ratings‘ analysts released their annual Global Housing and Mortgage Outlook report recently, explaining that housing and mortgage markets will be stable or improve in 2016 in most of the 22 countries covered in the study. However, in six countries the outlook has improved (all in Europe), while in three countries the outlook has deteriorated (Brazil, South Africa, and Singapore). This outlook report includes more changes than in 2015, which shows “shifts in relative performance and greater disparity of conditions globally.”
“While most markets are seen to be stabilizing or improving, a combination of macro-prudential controls and affordability constraints will constrain growth prospects,” Fitch Ratings said in the report. “Low mortgage rates, GDP growth, improving employment and price rises will support the mortgage performance of many markets.”
Fitch Ratings found that since housing is becoming more costly, regulators are taking steps to “cool the housing markets.” This will restrain mortgage lending growth as “financial sector regulation and housing policy continue to affect the amount and composition of mortgage lending.”
Fitch predicts that home prices will increase at a smaller rate in most countries, but the pace of the increases will likely be unchanged or decline from last year. Home prices are projected to rise 4 to 5 percent in the U.S. this year, led by positive economic momentum.
According to Fitch Ratings, home ownership is at a 25-year low in the U.S. and is still declining in many major mortgage markets. “Affordability constraints, mortgage availability, and consumer preferences, all have a bearing on home ownership rates–although improving funding conditions could act as a mitigant,” Fitch Ratings said.
As far as rate hikes in the future are concerned, Fitch Ratings said, “we do not expect performance in the mostly fixed-rate U.S. market to deteriorate significantly. While such macro-prudential controls might help contain long-term risks related to certain sectors, they have generally not offset the impact of low interest rates. With monetary tightening underway or expected in some regions, the near-term impact of possible rate rises will be generally muted. However, they may affect performance where policy rates are already fairly high and the macroeconomic backdrop is less supportive, such as some emerging markets.”
Fitch Ratings says in its latest annual Global Housing and Mortgage Outlook report that it expects housing and mortgage markets to be stable or improve in most of the 22 countries covered in the study. The number of outlooks that have changed (six improving and three deteriorating) is higher than it was in 2015, reflecting shifts in relative performance and greater disparity of conditions globally. While most markets are seen to be stabilising or improving, a combination of macro-prudential controls and affordability constraints will constrain growth prospects.
Low mortgage rates, GDP growth, improving employment and price rises will support the mortgage performance of many markets. But where one or more of these are missing – as in Brazil, South Africa, and Singapore – outlooks have worsened since last year. All of the markets with improved outlooks are located in Europe, where the peripheral eurozone markets continue to rebound.
In light of housing getting even more expensive (Fitch expects nominal house prices to increase in most countries although the pace of house price increases from last year will be unchanged or drop), some regulators are taking a more nuanced approach to cool the housing markets, which will limit new mortgage lending growth as financial sector regulation and housing policy continue to affect the amount and composition of mortgage lending.
Investment property or buy-to-let lending in particular seems to be a macro-prudential control target while policymakers may try to support the flow of mortgage credit to owner-occupiers in countries where affordability is stretched or housing markets are deemed sluggish (a combination which has led to home ownership rate falls in a number of major markets – although improving funding conditions are starting to act as a mitigant).
While such macro-prudential controls might help contain long-term risks related to certain sectors, they have generally not offset the impact of low interest rates. With monetary tightening underway or expected in some regions, the near-term impact of possible rate rises will be generally muted. However, they may affect performance where policy rates are already fairly high and the macroeconomic backdrop is less supportive, such as some emerging markets.
Despite the prospect of rate hikes, we do not expect performance in the mostly fixed-rate US market to deteriorate significantly. UK non-conforming borrowers are more vulnerable to higher rates than prime borrowers while in APAC, Singapore is most exposed to rate hikes given the mostly variable mortgage market there.
The new report, entitled ‘Global Housing and Mortgage Outlook – 2016’ covers 22 countries and assesses the key factors facing the major global housing and mortgage markets in 2015.
