Boost from lower mortgage rates to be short-lived

While slightly lower borrowing costs have boosted the near-term outlook, the decline has not been large enough to meaningfully improve housing affordability. In addition, we believe that market pricing overstates the extent to which the Fed will cut interest rates in the coming years. As the market reprices toward fewer cuts, 30-year mortgage rates are likely to rise back up to 6.5% by end-2026 and 6.75% by end-2027. As a result, existing home sales should peak at just 4.35m annualised in early 2026 before heading back down. Ongoing affordability constraints also mean we no longer expect prices to rise much this year, although they should climb by almost 2% in 2026 and 2027. The main beneficiary of the still weak for-sale market is the rental market, where strong demand is set to continue. With less new supply coming to the market, we expect the apartment vacancy rate to fall to 5.7% by end-2026, pushing rent growth to 3.0% – admittedly still below its long-run average of 3.5%.