Mortgage rates have risen faster than we originally anticipated and we now expect them to peak at 5.6% in mid-2023. That’s below the level of around 6% which we think risks tiggering a housing market correction, but higher interest rates mean we have cut our home sales and house price forecasts. We now expect existing home sales to drop 12% in 2022, with pent-up demand from the last couple of years preventing a larger fall. More plentiful inventory means new home sales will see a smaller decline of 3% in 2022, but that will still weigh on single-family housing starts which will drop by 1% in 2022 and by 9% in 2023. House price growth has significant momentum coming into 2022, but with affordability at its worst since the mid-2000s we expect a rapid slowdown to 8% y/y by end-22, with no change in 2023. The rise in risk-free rates will also push up apartment yields this year. Coupled with a slowdown in rental growth that means we now expect total annual returns of 6.4% in 2022, down from 18.6% in 2021.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services