SAO PAULO & CHICAGO--()--Spurred by sustained economic growth, explosive credit expansion, and restricted supply of adequate housing, Brazilian homes prices surged since 2008, but the trend appears to be ending as prices level off, according to a new report by Fitch Ratings.
'From January 2008 to July 2012, real housing prices increased by 92% in Sao Paulo and 118% in Rio de Janeiro. But in recent months, price growth has fallen in line with income growth,' says Jayme Bartling, Senior Director.
Expansion of Brazil's mortgage market is widely considered the most important driver of the property price boom. Mortgage lending as a percentage of GDP grew from 1.5% in 2005 to 5.4% as of May 2012, based on figures reported by the Central Bank of Brazil.
'Access to credit created an environment of 'affordability,' allowing home buyers to purchase pricier homes, which has added to price inflation.'
Talk of a housing bubble could be supported by decreasing rental yields in Sao Paulo and Rio, indicating properties are overvalued unless there are expectations for further income growth or significant capital appreciation.
Overall, housing prices have increased disproportionately to the rise in household incomes both in nominal and income-adjusted terms. House price-to-income ratios are above 5x in Sao Paulo and above 7x in Rio de Janeiro.
Although prices look expensive by any measure, Fitch does not expect them to go down significantly in a benign economic environment given medium-term supply and demand imbalances. However, in the event of stressed economic scenarios, Fitch acknowledges the risk of a considerable decrease in home prices.
The full report titled 'Home Price Growth in Brazil Slows' is available on the Fitch Ratings web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Home Price Growth in Brazil Slows (Reduced Risk of Bubble)