Housing Starts (Oct.)

Single-family starts had another strong month in October, and are now up 75% compared to their trough in April. Record low inventory is supporting homebuilder confidence, and that points to further gains in starts over the next few months. But a moderation in home sales, and lack of lots, means growth will now slow. We expect relatively small gains over the next couple of months, leaving single-family starts at around 1.19m annualised by the end of the year.
Matthew Pointon Senior Property Economist
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US Housing Market Chart Book

Rising mortgage rates will help cool booming prices

Mortgage rates are on the rise and we expect they will see further gains to end the year at around 3.5%. That, alongside relatively tight credit conditions, will help cool rampant house price inflation. From close to 20% y/y in July, we expect a slowdown to 15% y/y by end-2021 and 3% by end-2022. Stretched affordability will also weigh on home sales, although the drop in first-time buyers has at least arrested the fall in inventory. After four months of consecutive falls single-family building permits were unchanged in August. But with lumber prices rising again and shortages of other materials and labour, we don’t expect a strong rise over the remainder of the year. The lack of homes for sale and the reopening of cities have been positives for the rental sector. Vacancy rates are falling and rental growth is picking up, driving strong investor demand and pushing yields to record lows. We expect yields will stay low for the next year at least.

15 October 2021

US Housing Market Update

Will sales of condos continue to outperform?

Sales of condos have been on tear in recent months, with their share in total existing home sales reaching a 14-year high in June. The reopening of cities helps explain that development, and condo sales have also benefitted from comparatively favourable inventory and pricing. With house prices not set to decline and mortgage rates on the rise, demand for relatively affordable condos is set remain high.

7 October 2021

US Housing Market Data Response

Mortgage Applications (Sep.)

Home purchase applications rose for the first time in six months in September, even as mortgage rates increased to a 14-week high by the end of the month. But we expect a further rise in mortgage rates to around 3.5% by the end of this year and, combined with soaring house prices and tight credit conditions, that will weigh on home purchase mortgage demand. We therefore expect home purchase applications will drift lower over the remainder of the year.

6 October 2021

More from Matthew Pointon

US Housing Market Chart Book

Home demand drops as prices surge

Despite mortgage rates seeing little movement in recent months, mortgage applications for home purchase have dropped to their lowest level since April last year. That implies home sales have further to fall. Booming house prices, which reached a record high 15% y/y in April, and a shortage of inventory are constraining sales. While low mortgage rates mean affordability is still historically favourable, lenders are not easing lending standards and that will be weighing on purchasing power. By contrast, rental demand is recovering as cities have reopened. The recovery in the labour market will cut arrears, and strong earnings will help boost rental growth. Total apartment returns will average a healthy 6% p.a from 2021-25.

7 July 2021

US Commercial Property Outlook

Major Apartment Markets Outlook (Q2 2021)

With cities reopening apartment demand will see a substantial rise this year, boosted by the arrival of households who delayed a move last year. Vacancy rates will fall back in all six major cities covered in this Outlook with those hit hardest during the pandemic, NYC and D.C., enjoying the most vigorous recovery in demand as tenants return. Strong prospects for NOI growth mean yields will either edge back or hold steady this year, driving substantial capital growth in all the cities. Beyond that, a gradual rise in yields and shift to larger apartments will weigh on returns. But even San Francisco, which will suffer from its high concentration of tech workers, should see total average returns of around 5.0% p.a. from 2021-25. At the other end of the spectrum, D.C. will outperform with average total returns of 8.5% p.a.

29 June 2021

US Housing Market Update

Valuations still reasonable despite house price boom

The housing market hit a milestone in April, with real house prices rising above the previous peak recorded during the boom of the mid-2000s. But that doesn’t mean valuations are at dangerous levels. House prices look far more reasonable when gains in incomes and falls in mortgage interest rates are taken into account. With house price growth now set to slow, the prospect of another bubble forming is therefore low.

22 June 2021
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