Jan 21 (The following statement was released by the rating agency)
Fitch Ratings expects house prices to increase modestly in the US and remain broadly flat in
Canada in 2014. Despite concerns about regional overvaluation in both countries, a sharp drop in
prices is unlikely.
Fitch believes most of the US will see continued home price growth reflecting
market momentum, the effects of inflation, the improving economy, and a return
of buyers attracted by signs of stabilization. However, gains are expected to
slow compared to prior years due to rising mortgage rates and more inventory
becoming available. Mortgage volumes are expected to decline as rising rates
further curtail refinancing.
Fitch remains concerned about regional overvaluation. According to our
Sustainable Home Price model (SHP), national prices are now about 15% overvalued
in real terms. This risk is most pronounced in markets that have seen very high
home price growth in recent years that has outpaced improvements in local
housing and economic fundamentals. Prices look increasingly overvalued in
California when compared with fundamental demand drivers. For example, San
Francisco price-to-rent and price-to-income ratios have increased by nearly 25%
since the beginning of 2012, and are approaching all-time highs.
While Canadian prices may fall this year, Fitch believes any decline would be
slight due to the countryâ€™s strong macro-economic trends and cautious lending
policies driven by government measures, which are expected to slow lending in
2014. However, affordability in Canada is already very stretched, despite record
low interest rates, with our SHP model showing national prices approximately 20%
overvalued in real terms. We expect the central bank to maintain rates at
current levels for most of 2014 but increase them towards the end of the year,
potentially putting additional stress on the market.
Fitchâ€™s Global Housing and Mortgage Outlook includes forecasts
For all the countries, the outlook for the mortgage and housing markets has
either improved or remained similar to 12 months ago.