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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.

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