Increased demand for larger apartments to persist

Increased demand for larger apartments to accommodate working from home is already evident in NYC, where the inventory of units with two or more bedrooms has seen a sharper decline compared to smaller units. With working from home set to stay even as COVID-19 restrictions are eased, we expect the demand for larger apartments will persist. That will require a reversal of the downward trend in apartment size, which in turn means that rent per square foot and capital values are set to fall back from 2025.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

New Home Sales (Oct.)

The marginal improvement in new home sales in October was flattered by a downward revision to September’s data, and the bigger picture is that sales have been fairly steady since May. Looking ahead housing demand will ease as mortgage rates rise but, with new home inventory set to remain much healthier compared to existing homes, new sales will see a steady rise to 880,000 annualised by end-2022.

24 November 2021

US Housing Market Data Response

Existing Home Sales (Oct.)

Existing home sales eked out a small gain in October, slowing considerably from last month’s increase. With inventory at a record low, buyer sentiment in a pit and mortgage rates on the rise, we expect sales will fall back to around 5.7m annualised by mid-2022, before rising slowly to 5.75m by end-2023.

22 November 2021

US Housing Market Update

MBS taper won’t widen mortgage spreads

The announcement that the Fed will start to taper its purchases of MBS this month is not set to widen mortgage spreads. The cut in demand will be gradual and offset by a moderation in the supply of MBS as home sales decline. With the cost of the prepayment option set to remain low, we expect the spread between the 30-year mortgage rate and 10-year Treasury yield to stay close to its current level of 170bps over the next few years.

18 November 2021

More from Matthew Pointon

US Housing Market Chart Book

Home demand drops as prices surge

Despite mortgage rates seeing little movement in recent months, mortgage applications for home purchase have dropped to their lowest level since April last year. That implies home sales have further to fall. Booming house prices, which reached a record high 15% y/y in April, and a shortage of inventory are constraining sales. While low mortgage rates mean affordability is still historically favourable, lenders are not easing lending standards and that will be weighing on purchasing power. By contrast, rental demand is recovering as cities have reopened. The recovery in the labour market will cut arrears, and strong earnings will help boost rental growth. Total apartment returns will average a healthy 6% p.a from 2021-25.

7 July 2021

US Commercial Property 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.

29 June 2021

US Housing Market Update

Valuations still reasonable despite house price boom

The housing market hit a milestone in April, with real house prices rising above the previous peak recorded during the boom of the mid-2000s. But that doesn’t mean valuations are at dangerous levels. House prices look far more reasonable when gains in incomes and falls in mortgage interest rates are taken into account. With house price growth now set to slow, the prospect of another bubble forming is therefore low.

22 June 2021
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