Even if mortgage rates fall to 6% as we expect, mortgage rate ‘lock-in’ will continue to curb home moves. As a result, we only anticipate a trickle of new resale supply coming onto the market over the next few years. That will keep a lid on any recovery in activity, even as lower mortgage borrowing costs draw some buyers off the sidelines. Rising buyer demand mixed with a very small pool of second-hand homes for sale will ensure strong competition for homes and a 5% rise in house prices this year (against a consensus of +3%). In the rental market, we expect softening demand and strong completions to drive vacancy higher and hold rents around current levels over the next year or so. That weak outlook for Net Operating Income (NOI) growth, as well as rising cap rates in response to higher Treasury yields, will cause multi-family capital values to fall by around 23% peak-to-trough.
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