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US Housing Market Chart Book

Rising mortgage rates will help cool booming prices

Mortgage rates are on the rise and we expect they will see further gains to end the year at around 3.5%. That, alongside relatively tight credit conditions, will help cool rampant house price inflation. From close to 20% y/y in July, we expect a slowdown to 15% y/y by end-2021 and 3% by end-2022. Stretched affordability will also weigh on home sales, although the drop in first-time buyers has at least arrested the fall in inventory. After four months of consecutive falls single-family building permits were unchanged in August. But with lumber prices rising again and shortages of other materials and labour, we don’t expect a strong rise over the remainder of the year. The lack of homes for sale and the reopening of cities have been positives for the rental sector. Vacancy rates are falling and rental growth is picking up, driving strong investor demand and pushing yields to record lows. We expect yields will stay low for the next year at least.

15 October 2021

US Housing Market Update

Will sales of condos continue to outperform?

Sales of condos have been on tear in recent months, with their share in total existing home sales reaching a 14-year high in June. The reopening of cities helps explain that development, and condo sales have also benefitted from comparatively favourable inventory and pricing. With house prices not set to decline and mortgage rates on the rise, demand for relatively affordable condos is set remain high.

7 October 2021

US Housing Market Data Response

Mortgage Applications (Sep.)

Home purchase applications rose for the first time in six months in September, even as mortgage rates increased to a 14-week high by the end of the month. But we expect a further rise in mortgage rates to around 3.5% by the end of this year and, combined with soaring house prices and tight credit conditions, that will weigh on home purchase mortgage demand. We therefore expect home purchase applications will drift lower over the remainder of the year.

6 October 2021

Our view

Surging house prices coupled with tight credit conditions have stretched affordability and pushed homebuying sentiment to 39-year lows. We therefore expect new and existing home sales will see a further small decline this year. A rise in mortgage rates will take some of the heat out of house price growth, which we think will soon peak. Lumber prices have seen a sharp decline, and a large backlog of permits means single-family starts this year will be up around 15% compared to 2020. The reopening of the economy has been accompanied by a strong recovery in rental demand, and that will boost effective rental growth to 4.5% by the middle of next year.