New apartments will start to get larger soon

Apartments kept getting smaller in the second quarter of this year, with the median floor space of units falling to under 1,000 sq. ft., the lowest since records began in 1999. That trend seems at odds with rising demand for larger units to accommodate increased working from home. We suspect that dichotomy in part reflects lags in the development process, not helped by COVID-19, as well as surging steel prices. But with demand for bigger units here to stay, we don’t think it will be long before units start to get larger. We expect median floor size for multifamily starts will be back above 1,000 sq. ft. by the end of the year. In view of the wider interest, we are also sending this US Housing Update to clients of our US Commercial Property service
Matthew Pointon Senior Property Economist
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US Housing Market Update

Are too many homes being built?

Increased demand for larger homes to accommodate working from home and continued migration to the sunbelt will support housing demand even as population growth slows. We therefore don’t think the recent surge in housing starts, and rise in the number of homes authorised but not started, pose a risk to the housing market.

22 October 2021

US Housing Market Data Response

Existing Home Sales (Sep.)

The 7.0% m/m rise in existing home sales in September does not mark the start of an upward trend in activity. With mortgage rates rising, inventory close to record lows and home buying sentiment at 39-year lows sales are set to trend down over the next six-months. Beyond that, a gradual improvement in supply and less rampant house price growth will help sales slowly rise to around 5.75m annualised by end-2023.

21 October 2021

US Housing Market Data Response

Housing Starts (Sep.)

Single-family starts and building permits have been stable over the past three months at around 1.1m annualised, as strong new home demand has run up against shortages of materials and labour. We expect new home demand will remain robust even as mortgage rates rise, but constraints on the supply side will continue. Overall, that means single-family starts will see only a small rise over the next year or so, ending 2022 at around 1.2m annualised.

19 October 2021

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US Housing Market Chart Book

Soaring prices and lack of supply weigh on activity

Mortgage rates have been stable at close to record lows since mid-July, but that hasn’t prevented a decline in housing demand. New home sales are down 28% from their peak last year and while existing home sales surprised on the upside in July, the pending index implies they will soon drop back. Soaring house prices, tight credit conditions and lack of inventory are weighing on buyer sentiment and sales. House price growth hit another record high in June, but with demand now easing we suspect it is approaching its peak. Indeed, a recent moderation in the size of home purchase mortgages points to an upcoming cooling in prices. Rental demand has bounced-back strongly, leading to rapidly tightening markets and accelerating rental growth. With the for-sale inventory set to remain tight, the outlook for rental demand is strong and that has spurred a swift recovery in apartment capital values and a boom in apartment starts.

9 September 2021

US Housing Market Update

How vulnerable are house prices to a rise in rates?

Our forecast for mortgage rates to rise to 4.2% by end-2023 will help slow house price gains, but we don’t think that increase will be enough to cause an outright fall in values. And with homes not particularly overvalued, inventory close to record lows and nearly all borrowers protected by fixed rates even a more substantial rise in interest rates is unlikely to cause a crash in values. For example, we think a surge in mortgage rates to 6% by end-2023 would only bring prices down by around 5% over the next 2½ years, taking values back to where they were at the start of 2021.

26 August 2021

US Housing Market Update

End of eviction ban won’t stop recovery in rents

The eviction ban has been extended to early October, but we doubt it will be renewed again. Given the strength of the labour market, significant government support and robust rental demand, the resumption of evictions will not boost the rental vacancy rate. In turn that will support rents, with REIS effective rental growth set to rise to 4.0% y/y by mid-2022. The threat of eviction will also cut arrears which have weighed on CPI rental growth in recent months, helping to close the gap with asking rent measures. In view of the wider interest, we are also sending this US Housing Market Update to clients of our US Commercial Property service.

19 August 2021
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