Housing activity surges even as mortgage rates rise

Housing market activity has surprised on the upside over the past month and home sales look set for a strong end to the year. Even as mortgage rates increased to an eight-month high, home purchase mortgage applications have surged, pending home sales are trending up, and a rise in buyer traffic points to a resurgence in new home sales. The arrival of the Omicron variant has also brought interest rates down, which may give activity an added boost over the next month or so. However, stretched affordability and a lack of inventory means the resurgence in existing home sales is likely to prove short-lived. Indeed, house price growth is slowing, and we expect it will fall from around 20% y/y now to 3% by end-2022. The rental market is also booming, with vacancy rates falling back even faster than we expected as cities have reopened.