Home sales will run out of steam soon

Record low mortgage rates have continued to support home sales, with the pending homes sales index reaching its highest level since the series began in 2001. (See Chart 1.) But a rise in the 10-year Treasury yield implies mortgage rates will now tick-up. Alongside record low inventory and tighter mortgage lending standards, that means sales will edge back over the remainder of the year. Indeed, applications for home purchase declined in the final two weeks of September and homebuying sentiment dropped back. In contrast to the booming home sales market, rental markets have been far more subdued. The apartment vacancy rate rose to 5% in the third quarter, a nine-year high, and rental growth has slowed. With unemployment elevated and further support from the government not yet forthcoming, we expect a further rise in vacancy over the next few months.