Fitch says Australian homes expensive but crash unlikely

Updated

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."

While the report shows homes in Australian cities "appear expensive relative to those in other countries in price-to-income terms", Fitch analyst Ben Newey says that does not mean they are "over-valued".

"We don't actually believe it is over-valued, given affordability measures have been within that range for the last decade," he told ABC News Online.

"However, we don't expect house prices to grow at the same rate as they have in the last year."

Australian capital city home prices grew an average of just under 10 per cent in 2013 according to figures by real estate monitors RP Data, with Sydney leading the rise.

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 may 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 Fitch report expects the rise in real estate prices to continue outstripping wages growth.

"Fitch expects the affordability metric to slightly deteriorate over the next few years as home prices are likely to grow more than income," it concludes.

Topics: business-economics-and-finance, economic-trends, housing-industry, australia

First posted