Housing demand to collapse as virus takes hold

The coronavirus will cause a severe contraction in housing market activity. Mortgage applications for home purchase have already seen a 33% drop from their peak in late January. A surge in unemployment to record highs, and restrictions on movement, mean home sales will see a fall of 50% to 60% q/q between the first and second quarters. But action by states and Congress will prevent a surge in mortgage foreclosures and forced sellers, preventing a crash in house prices. With employment already seeing large declines, household formation will grind to a halt and absorption rates for new apartments are set to hit record lows. But, with no one able to move and evictions banned in most places, overall rental vacancy rates will see only a small rise. A rise in yields, and drop in rental growth, means total returns to apartments will drop to around -5% y/y by the end of the year.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

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1 June 2021

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26 May 2021

US Housing Market Data Response

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House price growth accelerated in March, reaching a record high of 13.9% y/y on the FHFA measure. But there are signs that the boom in prices is now weighing on housing demand and activity. New home sales dropped 5.9% m/m in April, and a steady decline in mortgage applications for home purchase points to a further moderation in sales over the next couple of months. That will help take some of the heat out of the market and bring house price growth back down to earth by the end of the year.

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