Boom in house price growth will prove short-lived

The surge in home sales looks to be running out of steam. The pending home sales index dropped back in September and October, and that points to a fall in existing home sales in November. With pent-up demand from the spring now largely expended, mortgage interest rates unlikely to fall further, inventory at record lows and early signs that the exodus from cities is slowing, home sales will edge back further over 2021. That, alongside tight credit conditions, suggest the current boom in house prices will prove short-lived. Rental demand is showing signs of recovery, and yields dropped back in the third quarter. After a sharp slowdown to -1.3% y/y in the third quarter, rental growth should gradually recover to around 1% y/y by the end of next year.