US Housing

US Housing Market Chart Book

US Housing Market Chart Book

House price growth cools as rents take off

The homeowner and rental markets are starting to swap places, with home sales and prices cooling as rental demand and rents take off. Rising mortgage rates have started to bring housing demand down, and we expect they will rise further over the next couple of years. Higher interest rates will also help cool rampant house price inflation, with month-on-month gains now starting to ease. However, we don’t think house prices will see outright falls and coupled with tight credit conditions that has shut out first-time buyers and pushed them to the rental market. Net apartment absorption saw a large rise in Q3, and multifamily rental vacancy rates are at 38-year lows on some measures. Alongside strong earnings growth that has led to a rapid recovery in rental growth. In turn that has driven strong investor interest in apartments and boosted total returns.

10 November 2021

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 Chart Book

Soaring prices and lack of supply weigh on activity

Mortgage rates have been stable at close to record lows since mid-July, but that hasn’t prevented a decline in housing demand. New home sales are down 28% from their peak last year and while existing home sales surprised on the upside in July, the pending index implies they will soon drop back. Soaring house prices, tight credit conditions and lack of inventory are weighing on buyer sentiment and sales. House price growth hit another record high in June, but with demand now easing we suspect it is approaching its peak. Indeed, a recent moderation in the size of home purchase mortgages points to an upcoming cooling in prices. Rental demand has bounced-back strongly, leading to rapidly tightening markets and accelerating rental growth. With the for-sale inventory set to remain tight, the outlook for rental demand is strong and that has spurred a swift recovery in apartment capital values and a boom in apartment starts.

9 September 2021
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US Housing Market Chart Book

Home sales and house prices to moderate

The share of households seeing now as a good time to buy a home has fallen to 39-years lows, as booming house prices, tight credit conditions and record low inventory have weighed on sentiment. But the share actually planning to buy has not seen such a large dip, so we expect existing home sales will moderate rather than crash. That easing in demand, and a gradual rise in mortgage rates, will help cool house price growth from record highs to around 10% y/y by the end of the year. In contrast to homebuying demand, rental demand has recovered strongly. Rental vacancy rates in some cities are now falling back, and timelier measures of rents are picking up. Given low risk-free interest rates that will boost apartment capital values and push total returns to 10.8% in 2021.

US Housing Market Chart Book

Home demand drops as prices surge

Despite mortgage rates seeing little movement in recent months, mortgage applications for home purchase have dropped to their lowest level since April last year. That implies home sales have further to fall. Booming house prices, which reached a record high 15% y/y in April, and a shortage of inventory are constraining sales. While low mortgage rates mean affordability is still historically favourable, lenders are not easing lending standards and that will be weighing on purchasing power. By contrast, rental demand is recovering as cities have reopened. The recovery in the labour market will cut arrears, and strong earnings will help boost rental growth. Total apartment returns will average a healthy 6% p.a from 2021-25.

7 July 2021

US Housing Market Chart Book

Home sales cool and prices will soon follow

Both new and existing home sales dropped back in April and the May pending home sales index points to further declines in existing sales over the next couple of months. House price growth of over 13% y/y and a rise in mortgage rates since the start of the year have stretched affordability and alongside record low inventory that is weighing on housing market activity. But unlike the mid-2000s, we doubt an unsustainable boom in house prices is on the horizon. Credit conditions tightened last year, and we expect only a gradual easing over the coming months. Price growth will therefore soon follow the downturn in home sales. Rental demand is recovering swiftly as the economy has reopened and vacancy rates are now falling. We expect that trend will continue, pushing rental growth up to 2.0% y/y by the end of the year.

US Housing Market Chart Book

Worsening affordability hits home buying sentiment

Mortgage rates have edged down since the end of March, but that didn’t prevent a fall in the share of households who see now as a good time to buy a home to a record low in April. House price growth of 12% y/y, and record low inventory, make for a tough home buying environment. That said, with so many frustrated buyers and lending standards set to be eased, we doubt home sales are set for a sharp fall this year even as mortgage rates rise to around 4% by end-2021. Housing starts, which have been held back in recent weeks by surging lumber prices, are also set for a strong second half of the year. Rental markets will benefit from the reopening of cities, which will help push vacancy rates down and reverse some of the recent fall in rents. We expect effective rental growth will rise from -3.4% y/y in Q1 2021 to around 2% y/y by the end of the year.

US Housing Market Chart Book

Record low inventory brings sales back to earth

Mortgage rates rose further in March, with the 30-year rate now up 50bps compared to the start of the year. Recent stability in the 10-year Treasury yield means mortgage rates are likely to move sideways over the next couple of weeks, but we expect they will soon resume their upward trend and end the year at around 4.0%. That, alongside record low inventory, will bring home sales back to earth. Indeed, the pending home sales index fell 10.6% m/m in February, pointing to a contraction in existing home sales in March. House prices saw another large rise in January, but even as house price expectations tick-up, higher mortgage rates should cool the market later this year. As the economy and offices reopen, apartment demand will recover this year, supported by the lack of homes for sale. We expect effective rental growth will rise from -2.9% y/y at end-2020 to 2.0% y/y by the end of this year.

9 April 2021
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