House price growth is expected to almost halve across Australia in 2015, according to a global ratings agency, but affordability pressures will remain in Australia’s largest cities.
National house prices are forecast to rise 4% in 2015, down from 7% in 2014, according to Fitch Ratings’ latest Global Housing and Mortgage Outlook. House price growth in Sydney and Melbourne – the two cities which led the growth last year – are expected to slow to 3%-4% this year, as they approach an “affordability ceiling”.
However, the report says that despite the moderation in price growth, affordability pressures will remain in Australia’s largest cities as price rises continue to “outstrip income growth”. Australian homes are the third most expensive of the 22 countries the 2015 Global Housing and Mortgage Outlook report analyses.
The report also predicts lending volumes to continue to grow as investment is expected to continue to account for 50% of new lending. However, as rental yields drop to less than 3.5%, Fitch stresses that housing investors' buying sentiment could be vulnerable to weakening if other asset classes offer better returns.