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Housing Starts (Apr.)

Housing starts dropped by a marginal 0.2% m/m in April, driven by the single-family sector which also saw building permits fall for the second month in a row. Housing demand is faltering due to a surge in mortgage interest rates to a 12-year high, which helped push homebuilding confidence to a two-year low in May. That said, pent-up demand from the past couple of years means we are not expecting a crash in housing market activity, and single-family starts will fall gradually to around 1m annualised by end-2022.
Matthew Pointon Senior Property Economist
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Mortgage rate rise hits housing market activity

The rise in mortgage rates, to a 12-year high in mid-April, is now starting to weigh on housing market activity, with new and existing home sales falling back over the past couple of months. With rates set to increase to 5.6% by mid-2023, that decline in sales will continue. However, plenty of pent-up demand from the last couple of years means a substantial fall in sales is unlikely. We expect existing home sales to drop to 5m annualised by end-2022, with new home sales seeing a small decline to 700,000 annualised over that period. Single-family starts will also fall back, in part due to the large number of homes now under construction. Rental demand is easing, as the recent surge in rents stretches affordability. That will bring rental growth down from 15.7% y/y at the start of 2022 to around 5% y/y by the end of the year. Beyond that, the boom in apartment starts seen last year will start to boost supply, and vacancy rates will stabilise at around 4.5% from mid-2023.

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Home sales and prices to cool as affordability worsens

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