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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.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

Housing Starts (Jul.)

Single-family housing starts fell for the fifth consecutive month in July, leaving them down by 25% from their high at the end of 2021. Leading indicators point to a much larger decline in the coming months. However, pent-up demand, tight supply and easing supply shortages will provide some support to starts, and we expect they will fall gradually to around 800,000 annualised by end-2022.  

16 August 2022

US Housing Market Outlook

Stretched affordability to hit sales and prices

Despite a reduction in our mortgage rate forecast, affordability is still set to be as stretched as it was during the mid-2000s housing boom. Alongside record-low homebuyer sentiment and a slowing economy, that means we have become more downbeat on housing activity this year. We now expect a 30% peak-to-trough fall in total home sales. The weaker outlook for new sales will weigh on single-family housing starts, which we think will end 2022 almost 35% below their end-2021 level. While tight markets and a lack of forced sellers will prevent a house price crash, we forecast that the annual growth rate will bottom out at -5% in mid-2023. From there, improving affordability will support a gradual recovery in activity and help price growth rise to 3% y/y by end-2024. Higher bond yields will also push apartment yields up a little this year and next. Coupled with a sharp slowdown in rental growth, that means we expect total annual returns to fall below 9% in 2022 and reach just 1.5% in 2023.

12 August 2022

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

More from Matthew Pointon

US Housing Market Data Response

Housing Starts (May)

Housing starts in May recorded their largest month-on-month decline since the height of the COVID-19 pandemic. A fall in housing demand due to higher mortgage rates is occurring at the same time as home completions have hit a 15-year high, which will be dissuading builders from starting new projects. That dynamic will continue over the remainder of the year, and that will push single-family starts down to 850,000 annualised by the end of the year.

16 June 2022

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.

14 June 2022

US Housing Market Chart Book

Housing demand falls as mortgage rates rise

Housing activity is slowing in the face of higher mortgage interest rates. Mortgage applications for home purchase dropped to a two-year low in May, existing homes sales have declined in each of the three months to April and new home sales recorded their largest month-on-month decline in almost nine years. With mortgage rates set to rise further to around 5.5% by the end of 2022 and home buying sentiment collapsing to 40-year lows, activity will see further declines this year. That will soon show up in slowing house prices, which saw a record month-on-month rise in March. From around 20% y/y, we expect growth will drop to around 9% by the end of this year. Rental demand is also set to ease as affordability worsens. Coupled with a surge in supply that means rental vacancy rates will only see a small fall from here. Total returns are set to slow from 19% in 2021 to around 7% in 2022 and 5% in 2023.

9 June 2022
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