US Housing

US Housing Market Outlook

US Housing Market Outlook

Rising mortgage rates will cool house price growth

Mortgage rates have risen to a six-month high and will increase further over the next couple of years. While inventory is set to remain tight, cutting the risk of an outright fall in house prices, that rise in interest rates coupled with tight credit conditions will bring house price growth down from its record high of close to 20% y/y now to around 3% y/y by end-2022. Higher financing costs will also weigh on existing home sales. But a healthier inventory means new home sales will see a gradual rise over the next couple of years. Strong new home demand will support housing starts, but a lack of materials and labour argues against a strong rise for the next year or so. The lack of homes for sale, and reopening of offices and cities, has led to a significant rebound in rental demand. That is feeding through to lower vacancy rates, a rise in rental growth and a supply response. A strong rental growth outlook has encouraged investors into the apartment sector, and that will push total returns up to around 19% this year. Beyond that, a gradual rise in yields from 2023 will pull returns down to around 2% p.a. in 2024-25.

28 October 2021

US Housing Market Outlook

Major Apartment Markets Outlook (Q3 2021)

The apartment market is set for a stellar year. The reopening of cities is bringing vacancy rates down and pushing rents up, and strong investor demand has led to a sharp fall in yields. We expect national total returns of around 19% in 2021. The six major cities in this Outlook, which saw relatively large falls in capital values in 2020, will not quite match that this year. But most will catch-up in 2022 and beyond. Total returns in D.C. and Boston will outperform the national average of 7% p.a. from 2021-25, and L.A., NYC and Chicago will broadly match that return. The exception is San Francisco, where an exodus of footloose tech workers and high rents have cut demand. Even so, we still expect some recovery in demand, with rent growth turning positive and total returns of close to 5% p.a. from 2021-25. In view of the wider interest, we are also sending this US Commercial Property Outlook to clients of our US Housing service.

1 October 2021

US Housing Market Outlook

Home sales to ease even as mortgage rates stay low

Even as mortgage rates have remained low, housing market activity has dropped back as booming house prices, tight credit conditions and a lack of inventory have put off buyers. We expect that dynamic to continue over the remainder of the year. While mortgage rates will see only a small rise to 3.5% by end-2021, total home sales will end the year at around 6.5m annualised, down 15% y/y. Low mortgage rates will however support house prices, and we expect growth to only slow to around 10% y/y by end-2021. Single-family housing starts have been constrained by a shortage of materials and labour. While the latter won’t be solved overnight, a sharp drop in lumber prices should help get some stalled projects off the ground and help starts average 1.16m in 2021, a 16% increase on 2020. Rental demand is recovering quickly as cities and offices reopen and households complete delayed moves. With supply also tight, that will drive up effective rental growth to 2.5% y/y by end-2021, and 4.0% y/y by mid-2022.

15 July 2021
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US Housing Market Outlook

Major Apartment Markets Outlook (Q2 2021)

With cities reopening apartment demand will see a substantial rise this year, boosted by the arrival of households who delayed a move last year. Vacancy rates will fall back in all six major cities covered in this Outlook with those hit hardest during the pandemic, NYC and D.C., enjoying the most vigorous recovery in demand as tenants return. Strong prospects for NOI growth mean yields will either edge back or hold steady this year, driving substantial capital growth in all the cities. Beyond that, a gradual rise in yields and shift to larger apartments will weigh on returns. But even San Francisco, which will suffer from its high concentration of tech workers, should see total average returns of around 5.0% p.a. from 2021-25. At the other end of the spectrum, D.C. will outperform with average total returns of 8.5% p.a.

US Housing Market Outlook

Higher mortgage rates to cool red hot housing market

After a bumper second half of 2020, housing market activity will lose steam in 2021 as higher mortgage interest rates and record low inventory weigh on home sales. House price growth will also fall back, as recent strong gains in prices combined with higher financing costs lead to worsening affordability. That said, strong economic growth, an easing in credit conditions, lots of savings and plenty of frustrated buyers looking for homes mean the slowdown in sales and prices will be modest. House price growth will ease from 10% y/y at the start of the year to around 5% y/y by the end. That will continue to support housing starts, which will average around 1.16m in 2021. As the labour market recovers and offices reopen, that will attract people back to cities, supporting apartment demand. We expect rental vacancy rates will drop from 5.3% at end-2020 to 5.0% by end-2021, helping rental growth rise to 2.0% y/y by the final quarter and total returns to average 6.7% this year.

US Housing Market Outlook

Housing market to cool in 2021

The housing market boomed in the latter half of 2020, as record low mortgage rates, displacement due to COVID-19 and increased savings boosted home demand. But those drivers will ease in 2021 and, alongside worsening affordability and record low inventory, home sales will fall back toward their pre-COVID trend. House price growth, which surged to a 6½-year high in late 2020, will also slow, ending the year at around 3.0% y/y. Tight market conditions mean housing starts will see further growth, but at a slower pace as constraints on production start to bite. As vaccines are rolled out rental demand will recover, helped by significant rent cuts in most major cities and the shortage of homes for sale. We now expect apartment income yields to edge back the next couple of years, and rental growth to recover from -4.0% at the end of 2020 to around 1% y/y by the end of 2021.

23 December 2020

US Housing Market Outlook

Home sales to fall as inventory runs out

Record low mortgage rates, pent-up demand from the spring and some movement out of cities have helped drive home sales to 13-year highs. But with inventory falling to record lows, mortgage lending standards tightening and unemployment elevated, new and existing home sales will fall back over the remainder of the year. That will help take some of the heat out of the recent rebound in house price growth. After rising to 5.3% y/y in the third quarter, growth will slow to 2.0% y/y by the end of next year. In contrast to soaring home sales, rental markets have been getting looser, and we expect vacancy rates will rise further to 5.5% by the end of the year. That will push rental growth down to -1.5% y/y over the next couple of quarters. But, beyond that, the lack of homes for sale means rental demand should recover alongside the economy, and yields will ease back over 2021 and 2022.

16 October 2020

US Housing Market Outlook

Lack of inventory to weigh on home sales recovery

Record low mortgage rates have helped housing demand to recover swiftly from the shock of the coronavirus, with mortgage applications for home purchase recently hitting a 10-year high. Home sales have also jumped back, but a second wave of shutdowns, and record low inventory, will weigh on existing home sales over the remainder of the year. The new home inventory is healthier, and strong sales will help single-family housing starts recover to pre-virus levels in the first quarter of 2021. The strength of demand means we no longer expect house prices to fall, but tighter credit conditions mean growth will slow to around 0%. Rental demand has seen a sharp fall as younger Americans have lost their jobs. But with so few homes to buy, the medium-term outlook for demand is positive. After dipping to -1% by the end of this year, rental growth is set to recover to 3.5% by end-2022.

23 July 2020
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