The drop in 10-year Treasury yields seen in recent weeks has led to lower mortgage interest rates. We now think the 5.17% the 30-year fixed rate reached in November represents the peak of the current cycle. Rates are likely to drop back to 4.3% by end-2019, and 4.2% by end-2020. That will prevent a more serious downturn in home sales from developing, but we doubt it will trigger a resurgence in activity. Easing house price expectations, a continued lack of inventory and an economic slowdown all suggest existing home sales will do no more than hold their ground over the next couple of years. But stagnant home sales will be good news for the rental sector. Landlords can look forward to solid rental demand even as household formation slows. We expect rental growth will ease back gradually, from 3.6% today to 3.2% by end-2020.
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