House price growth surged to 8.4% y/y in October, as booming home sales have combined with record low inventory to boost values. But that rise in prices has already offset the improvement to affordability provided by record low mortgage rates. With mortgage rates now edging up, pent-up demand from the spring exhausted and buying sentiment falling back, home sales will cool over the next few months. The rapid growth in housing starts will also slow, but with homebuilder confidence close to record highs 2021 will be the best year for starts since 2006. Rental demand is starting to recover, driven in part by aggressive rent cuts. That will help stabilise vacancy rates over the next few months, and yields are set for a further small fall.
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