Rising mortgage rates to cool housing market in 2022

Rising mortgage rates to cool housing market in 2022

Housing market activity had a strong end to 2021, with sales and starts both rising. However, after a brief dip due to concerns over Omicron, mortgage rates resumed their upward trend and reached a nine-month high by the end of the year. A further rise in the 10-year Treasury yield means mortgage rates will rise further over the next few weeks. With lenders unlikely to significantly loosen credit conditions that will stretch affordability and cool the market. Indeed, there are now signs that house price growth is slowing and we expect it will fall from around 19% y/y now to 3% by end-2022. A surge in rental household formation is supporting demand, driving down vacancy and boosting rental growth. That has in turn attracted investors into the apartment sector, pushing yields to record lows and multifamily building permits to a 35-year high. Total returns will be a healthy 10% p.a. this year, before a gradual rise in yields pushes returns down to around zero by end-2025.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

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New home sales had a strong end to the year, as the record low number of existing homes on the market drove the sale of homes which were still under construction. That lack of existing supply will continue to support new home sales even as overall demand cools on the back of rising mortgage interest rates. From 811,000 annualised at the end of 2021, we expect a rise in sales to around 840,000 by end-2022.

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US Housing Market Data Response

Case-Shiller/FHFA House Prices (Nov.)

Case-Shiller reported annual house price growth falling for the third consecutive month in November. And with rising mortgage rates set to stretch affordability to its worst since 2008, we expect annual house price growth to slow from 19% to around 3% by end-2022.

25 January 2022

US Housing Market Data Response

Existing Home Sales (Dec.)

Despite a 6% m/m fall in existing home sales in December, 2021 marked an impressive year for existing home sales, with sales 11% higher compared to 2020. But looking ahead, a backdrop of rising mortgage rates and a record-low inventory means that sales will drop back and average around 5.88m annualised this year, less than most other forecasters expect.

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US Housing Market Update

Material shortages hit housing completions

Shortages of materials and labour over the past year have not stopped builders from starting a lot more single-family homes. But they do appear to have prevented them from finishing them. That implies a surge of homes will be completed later this year as builders get hold of the last items needed to finish a property. With many of those homes already sold, we doubt that will boost the inventory of completed new homes. But it will allow the owners of those new homes to put their existing property up for sale, and that should finally help the existing home inventory to rise gradually later next year.

6 January 2022

US Housing Market Data Response

Mortgage Applications (Dec.)

After a brief dip due to concerns over the Omicron variant, both the 10-year Treasury yield and 30-year mortgage rate have since resumed their upward trends, with the latter rising to a nine-month high by the end of last year. That will help reverse the surge in housing demand seen late last year, with applications for home purchase set to fall back to where they were in mid-2021 over the next couple of months.

5 January 2022

US Housing Market Data Response

New Home Sales (Nov.)

The healthy rise in new home sales in November primarily reflected a downward revision to the previous month’s reading. Nevertheless, new sales activity is still elevated compared to its pre-COVID-19 level, albeit increasingly focused on the higher end of the market. Indeed, for the first time since records began in 2002 no new homes were sold for under $200,000. As mortgage rates rise, affordability constraints will start to cool sales and we expect a modest rise to around 800,000 annualised by end-2022.

23 December 2021
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