Fitch: US, Canada House Price Growth to Slow in 2015

Link to Fitch Ratings' Report: Global Housing and Mortgage Outlook -- 2015

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=849488

House prices in the U.S., Canada and Mexico are likely to rise modestly in 2015, Fitch Ratings says. U.S. price growth continues to decelerate, and we project a small rise as the economic recovery continues amid rising interest rates. While we also expect Canadian house prices to experience more modest growth than last year, we believe they are overvalued when compared with long-term fundamentals. We forecast Mexican house prices to grow modestly as the benign macroeconomic environment will be complemented by favorable supply-demand characteristics.

U.S. residential real estate prices will grow at approximately the rate of inflation in 2015, with regional variations. While the housing recovery will continue to benefit from the improving economic growth and employment trends, price gains may be tempered by the low home ownership rates and the potential for modestly higher mortgage rates in the second half of the year. Regions with significant price gains in recent years, including markets in California and Texas, look overvalued according to the agency's sustainable home price analysis and are expected to level off or experience modest corrections. We project U.S. delinquency rates on legacy collateral will fall by 30 bps to 8.4% in 2015, while loans originated since 2010 will continue a trend of exceptional performance. We also expect the portion of distressed sales to fall as rising prices create more options for lenders and borrowers.

We project a 2.5% increase in Canadian prices in 2015 on market momentum and an expanding economy. However, national prices are approximately 20% overvalued compared to long-term economic fundamentals. As borrowers currently hold record levels of debt, rate increases could strain affordability, restricting house price growth and negatively impacting mortgage performance. Nonetheless, the 30-bps rate rise Fitch projects for 2015 is not expected to have a material impact on delinquencies since the use of affordability products in the market has been limited, and borrowers have built up equity as prices have risen. With affordability declining on rising prices and higher rates coupled with a government pullback on support for riskier lending products, some marginal homebuyers will find it harder to acquire mortgage funds, which could restrict total demand.

In Mexico, which is included in the report for the first time, house prices should rise moderately this year. While the economy is likely to continue to expand, wage growth may lag, but conservative mortgage products and high average borrower equity levels support this stability. Demand continues to be driven by new borrowers, with the formal workforce growing steadily at an annual rate of 3.9% over the past 10 years. On the mortgage supply side, Fitch expects government agencies and the banking sector to provide consistent credit access to the market, and the use of newly available fixed- rate mortgage products should grow rapidly compared to traditional inflation-linked mortgages.

Fitch's latest Global Housing and Mortgage Outlook includes forecasts for house price developments, arrears, and mortgage lending volumes for 22 countries around the world and compares these trends between countries. The report is available by clicking the link above or at www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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