Slower home price growth in LatAm amid high rates in 2023

latam real estate

Fitch Rating is projecting home price growth in Brazil, Mexico and Colombia in 2023, albeit at a slower pace in Mexico and Colombia compared with 2022, given credit availability, supply shortages and higher construction input costs.

Home price growth forecasts for these countries are the highest of the 15 countries covered in the agency’s Global Housing and Mortgage Outlook – 2023, with prices expected to increase 6%-8% in Mexico, 4%-6% in Brazil, and 3%-5% in Colombia in 2023.

Fitch Peak-to-Trough Home Prices Forecast vs Home Price Growth (HPG) Since 2020

(Source: Fitch Ratings)

Price growth will be somewhat tempered by persistently high interest rates, lower GDP growth and high unemployment.

Higher mortgage arrears in Brazil of between 1%-3%, and in Mexico and Colombia, both with projected arrears of between 3%-5%, will be moderated by the prevalence of amortizing fixed loans, stable employment and prudent underwriting, and in the case of Colombia, government support for housing through subsidy programmes, the agency said.

Fitch’s expectation for lower discretionary income and unemployment pressures on mortgage performance is also reflected in the agency’s deteriorating 2023 RMBS asset performance outlooks for the US, Mexico, Brazil and Colombia.

Speaking of the US, nominal home prices will fall in the US and Canada, with expected declines of up to 5% and between 5%-7%, respectively, Fitch said. High mortgage rates reduce affordability and lead to lower demand, pressuring prices, although housing supply limitations may curb price declines. Elevated mortgage costs will price out first-time buyers and discourage potential sellers from trading up.

In the US, mortgage arrears will increase to around 1.9% in 2023 from 1.45% in 2022, due in part to rising unemployment. Most US borrowers are unlikely to be affected by the rapid rise in mortgage rates as the vast majority of the market is 30-year fixed-rate loans. Foreclosures and mortgage losses are not expected to be material given the substantial amount of equity build up since the start of the Covid-19. Arrears for Canadian mortgages will also remain low, increasing to between 0.2%-0.25% from 0.14%, given banks’ proactive relationships with borrowers.