Mortgage rates set to drop to 2½-year lows

Mortgage interest rates are set to fall to their lowest level since the end of 2016, but that will not trigger a surge in housing market activity. Concerns over the health of the economy means home buying sentiment is subdued, and a lack of inventory will limit existing home sales. Moderating housing demand and affordability constraints have pushed house price growth down to 6½-year lows, and it is set to slow to 2% y/y by the end of 2019. Rental demand has been supported over the past year by strong household formation, but that will fade as the economy slows. But with developers cutting their production expectations, a large rise in vacancy rates should be avoided.