With elevated inflation and rising interest rates curbing demand, the global housing market is expected to slow markedly in the year ahead, says Fitch Ratings in a new report.
The rating agency said that it expects nominal home prices to decline, or at least slow “substantially,” in most countries in 2023.
Prices have already begun declining in a number of markets, including Canada, the U.S., the U.K. and China, in the second half of 2022, it noted.
Looking ahead, Fitch expects loan performance to deteriorate as growth slows and real incomes decline amid strong inflation and higher borrowing costs.
“Housing markets where a sizeable proportion of mortgages are floating rate or short-term fixed, including Australia, Canada, Italy, Spain and the U.K., are particularly vulnerable to rising rates,” the report said.
However, loan losses aren’t expected to reach the levels seen during the global financial crisis due to tighter underwriting standards, tougher regulation, and higher levels of home equity, it noted.
The report also warned that the downside risks to the outlook for global housing markets are material.
“The ability of governments to navigate fiscal and monetary policy to avoid a deeper downturn and low consumer confidence are key to avoiding steep housing market declines,” it said.
“Risks of inflation remaining higher for longer, more severe rate increases than our forecasts, and wages falling further behind inflation could result in a considerably larger price correction,” it warned.