Sales heading to record lows

The impact of the coronavirus is showing up in housing market activity. Pending home sales plummeted 21% m/m in March, which points to existing home sales falling to just over 4m annualised in April. We expect they will eventually bottom out closer to 3m. Admittedly, mortgage applications for home purchase recovered over the second half of April, but with large parts of the country still shut down that won’t translate into higher sales. Mortgage delinquencies will match the highs seen during the financial crisis, but foreclosures will be far lower. A lack of forced sales will provide some support to house prices, but a collapse in price expectations means growth will slow from 4.2% y/y to around -4.0% y/y by early next year.
Matthew Pointon Senior Property Economist
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US Housing Market Chart Book

Housing activity surges even as mortgage rates rise

Housing market activity has surprised on the upside over the past month and home sales look set for a strong end to the year. Even as mortgage rates increased to an eight-month high, home purchase mortgage applications have surged, pending home sales are trending up, and a rise in buyer traffic points to a resurgence in new home sales. The arrival of the Omicron variant has also brought interest rates down, which may give activity an added boost over the next month or so. However, stretched affordability and a lack of inventory means the resurgence in existing home sales is likely to prove short-lived. Indeed, house price growth is slowing, and we expect it will fall from around 20% y/y now to 3% by end-2022. The rental market is also booming, with vacancy rates falling back even faster than we expected as cities have reopened.

7 December 2021

US Housing Market Data Response

Mortgage Applications (Nov.)

A rise in mortgage rates to an eight-month high of 3.31% by the end of November failed to dampen home purchase demand, which surged to a nine-month high. The drop in 10-year Treasury yields from the arrival of the Omicron variant implies mortgage rates will fall back over the next couple of weeks, which may provide some further support to demand. But with affordability stretched we doubt the current level of home purchase applications can be sustained beyond the next few weeks.

1 December 2021

US Housing Market Data Response

Case-Shiller/FHFA House Prices (Sep.)

Annual house price growth fell for the first time in 16-months in September, and stretched affordability means it should continue to slow. It is too soon to say what impact the arrival of the Omicron variant will have on the housing market. But one immediate effect has been a fall in interest rates, which if sustained may give prices some support over the remainder of the year.

30 November 2021

More from Matthew Pointon

US Housing Market Update

What’s driving the surge in rent expectations?

Consumer expectations of rental growth have surged to record highs over the past couple of months. But that appears to reflect optimism around the housing market in general, rather than the rental sector in particular. We therefore doubt actual rental growth will follow expectations to record highs. That said, a rise in demand as cities and offices reopen means rental growth will recover, albeit to a fairly modest 2% y/y by the end of the year.

10 June 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.

8 June 2021

US Housing Market Update

House prices will avoid a dangerous bubble

House price expectations have taken off since the start of the year, and that raises the risk of a self-reinforcing bubble forming. However, there are no signs that lenders are rapidly loosening credit conditions on the back of higher house prices, and that argues against a repeat of a mid-2000s credit cycle. Rather, rising mortgage interest rates, a stabilisation in down payments and stretched affordability mean that house price gains will slow over the second half of the year.

1 June 2021
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