Housing activity contracts even as rates stabilise

The upward trend in mortgage rates took a breather over the past month, but that didn’t provide much of a boost to housing market activity. Existing home sales have fallen for four months in a row, and a sharp decline in the Fannie Mae Home Purchase Sentiment Indicator points to annual growth in sales dropping further into negative territory. Waning demand will soon bring house price growth down, with a contraction in home purchase mortgage size pointing to annual growth slowing to zero by the end of the year. We expect that slowdown will continue, with annual growth bottoming out a -5% by mid-2023. Rental demand also looks to be losing steam as surging rents weigh on household formation. Rental growth over the past couple of months has been slightly stronger than we expected, but it will soon slow. Coupled with a rise in yields over the next few years that will cut apartment total returns from 18.6% in 2021 to 4% p.a. from 2022-26.