Recent falls in Treasury yields have bought mortgage rates back down from a peak of 8% in October to 7% earlier than we had anticipated, setting the scene for a recovery in housing market activity in 2024. That said, as we don’t think borrowing costs will return to the same low levels as in the 2010s, the recovery in demand and sales will be sluggish. Meanwhile, house prices should lose some of their recent momentum given the data are backward-looking and yet to capture the impact of October’s peak in mortgage rates. But further price falls are unlikely.
While the 10-year US Treasury yield has now dropped back to be in line with apartment yields, a further increase in NOI yields still seems inevitable. The upshot is that total returns will be negative in both 2023 and 2024 before turning positive in 2025.
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