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US Housing

US Housing Market Update

US Housing Market Update

Higher rates to prevent rise in homeownership

The odds are stacking up against first-time buyers (FTBs), an important demographic for homeownership. A very limited number of starter homes on the market, higher interest rates, tight credit conditions and a weak outlook for new home sales all point to the rise in the homeownership rate in recent years coming to an end.

5 August 2022

US Housing Market Update

Tight supply limits threat from rising construction

The current surge in homes under construction has few parallels with the building boom that preceded the house price crash in the late 2000s. The build-up of homes under construction has largely been caused by delays in sourcing materials and labour, rather than overbuilding. Many of the uncompleted homes have already been sold and a tight market will help soak up the extra supply even as demand eases. We therefore think the threat from oversupply is small.

29 July 2022

US Housing Market Update

The anatomy of a housing market downturn

Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most indicators already softening in both countries, it is just a matter of time before house prices fall. In view of the wider interest, we are also sending this US Housing Update to clients of our UK Housing Service.

24 June 2022
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US Housing Market Update

Surge in mortgage rates makes house price falls likely

We have previously argued that a mortgage rate of above 6% represents the threshold at which house price falls become likely. With rates recently rising above that level, we are therefore revising down our house price forecast. That said, the prevalence of fixed rate mortgages, tight credit conditions and a relatively healthy labour market still rules out a price crash. We now expect annual house price growth will fall to -5% by mid-2023, followed by a gradual recovery to 3% by end-2024.

US Housing Market Update

Existing home sales set for a sharper fall

Leading indicators are pointing to a large fall in existing home sales. For example, the recent sharp decline in the NAR buyer traffic balance is consistent with a fall in sales to 4.5m annualised which, excluding the COVID-related dip of 2020, would represent a 10-year low. Set against that, there is evidence of pent-up demand in the market which argues against a drop of that magnitude. Overall, the deterioration in leading indicators means we have cut our forecast for existing home sales to 4.8m by end-2022, a 22% y/y fall.

US Housing Market Update

Is remote work responsible for the house price boom?

By increasing the demand for accommodation and boosting rents, the shift to remote work will have put some upward pressure on house prices. But while rents have seen an above-trend increase since the end of 2019, that would only have boosted house prices by an additional 2% at most. Rather, the fall in mortgage rates and rise in house price expectations explain most of the recent surge.

US Housing Market Update

NYC apartment rental growth will cool rapidly

Rental growth in NYC reached 22% y/y in Q1 2022, one of the fastest rates in the country. But we expect growth to cool rapidly from here and underperform other cities. The past surge in rents largely reflects a reversal of large falls in 2020, which helped attract households back into the city. But with rents now 7.5% above pre-pandemic levels and the employment outlook relatively weak, we expect asking rents to increase by a cumulative 7% from 2023-26 compared to a gain of around 10% in other major cities. In view of the wider interest, we are also sending this US Housing Update to clients of our US Commercial Property Service.

US Housing Market Update

Mortgage debt service ratio to remain low

The surge in mortgage rates has led to a sharp deterioration in home affordability. But that doesn’t mean the mortgage debt service ratio, the share of disposable income spent on mortgage payments, will also surge from its current low level. Existing borrowers are protected by long-term fixed mortgage rates, and tight credit conditions argue against a large rise in debt-to-income ratios for new buyers. While home sales will take a hit from higher interest rates, the housing market will remain resilient to future shocks.

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