Stimulus cheques help explain house price rebound

After beginning to slow at the turn of the year, house price growth has since got a second wind. We suspect the key driver behind that resurgence was the arrival of the third round of stimulus cheques, which drove up the saving rate and helped boost first-time buyer down payments by 12% between February and May. But with no more cheques on the horizon and the saving rate stabilising that support for house prices will dissipate, supporting our call that annual house price growth will soon peak.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

Mortgage Applications (Nov.)

A rise in mortgage rates to an eight-month high of 3.31% by the end of November failed to dampen home purchase demand, which surged to a nine-month high. The drop in 10-year Treasury yields from the arrival of the Omicron variant implies mortgage rates will fall back over the next couple of weeks, which may provide some further support to demand. But with affordability stretched we doubt the current level of home purchase applications can be sustained beyond the next few weeks.

1 December 2021

US Housing Market Data Response

Case-Shiller/FHFA House Prices (Sep.)

Annual house price growth fell for the first time in 16-months in September, and stretched affordability means it should continue to slow. It is too soon to say what impact the arrival of the Omicron variant will have on the housing market. But one immediate effect has been a fall in interest rates, which if sustained may give prices some support over the remainder of the year.

30 November 2021

US Housing Market Update

Why are pending and existing home sales diverging?

An increase in the quality of mortgage borrowers, and record low inventory, are boosting the mortgage closing rate and leading to an increase in the share of pending home sales converted into existing home sales. Those factors are not set to go into reverse anytime soon, so we don’t think existing sales will snap back to match the pending sales index over the next few months.

29 November 2021

More from Matthew Pointon

US Housing Market Update

New apartments will start to get larger soon

Apartments kept getting smaller in the second quarter of this year, with the median floor space of units falling to under 1,000 sq. ft., the lowest since records began in 1999. That trend seems at odds with rising demand for larger units to accommodate increased working from home. We suspect that dichotomy in part reflects lags in the development process, not helped by COVID-19, as well as surging steel prices. But with demand for bigger units here to stay, we don’t think it will be long before units start to get larger. We expect median floor size for multifamily starts will be back above 1,000 sq. ft. by the end of the year. In view of the wider interest, we are also sending this US Housing Update to clients of our US Commercial Property service

14 September 2021

US Housing Market Chart Book

Soaring prices and lack of supply weigh on activity

Mortgage rates have been stable at close to record lows since mid-July, but that hasn’t prevented a decline in housing demand. New home sales are down 28% from their peak last year and while existing home sales surprised on the upside in July, the pending index implies they will soon drop back. Soaring house prices, tight credit conditions and lack of inventory are weighing on buyer sentiment and sales. House price growth hit another record high in June, but with demand now easing we suspect it is approaching its peak. Indeed, a recent moderation in the size of home purchase mortgages points to an upcoming cooling in prices. Rental demand has bounced-back strongly, leading to rapidly tightening markets and accelerating rental growth. With the for-sale inventory set to remain tight, the outlook for rental demand is strong and that has spurred a swift recovery in apartment capital values and a boom in apartment starts.

9 September 2021

US Housing Market Update

How vulnerable are house prices to a rise in rates?

Our forecast for mortgage rates to rise to 4.2% by end-2023 will help slow house price gains, but we don’t think that increase will be enough to cause an outright fall in values. And with homes not particularly overvalued, inventory close to record lows and nearly all borrowers protected by fixed rates even a more substantial rise in interest rates is unlikely to cause a crash in values. For example, we think a surge in mortgage rates to 6% by end-2023 would only bring prices down by around 5% over the next 2½ years, taking values back to where they were at the start of 2021.

26 August 2021
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