A major ratings agency says Australian housing is expensive, but not necessarily over-valued, and that price growth should moderate from last year’s levels.
Fitch’s global Mortgage and Housing Market Outlook looks at 17 nations, and finds Australia ranks inside the worst four countries on three key measures of housing affordability.
“Relative to rents, house prices in a number of countries are significantly above 1997 levels and also above the long-term average ratio. This is especially the case for Belgium, France, the UK, Australia, and Canada, where the ratio is above 170 per cent of 1997 levels,” the report observed.
“At the same time, all of these countries also feature high house price to income/GDP ratios. Therefore, it seems reasonable to assume that, in real terms, the upside potential for home prices is limited over the next decade.”
Fitch is forecasting price growth of around 4 per cent for Australian housing this year, and similar price rises in 2015, even as interest rates start rising.
Australian home prices appear to have started 2014 with solid gains, with RP Data’s daily five-city index showing a rise of around 0.7 per cent so far this year.
The ratings agency says those price gains are likely to remain slightly ahead of wages growth, meaning affordability is expected to worsen further over coming years.
Fitch says recent history has shown that Australia appears able to tolerate relatively high home prices.
“Australian cities appear expensive relative to those in other countries in price-to-income ratio terms. The ratio has, however, been in the same range for a decade,” the report noted.
“Fitch expects the affordability metric to slightly deteriorate over the next few years as home prices are likely to grow more than income.”