Even as mortgage rates have remained low, housing market activity has dropped back as booming house prices, tight credit conditions and a lack of inventory have put off buyers. We expect that dynamic to continue over the remainder of the year. While mortgage rates will see only a small rise to 3.5% by end-2021, total home sales will end the year at around 6.5m annualised, down 15% y/y. Low mortgage rates will however support house prices, and we expect growth to only slow to around 10% y/y by end-2021. Single-family housing starts have been constrained by a shortage of materials and labour. While the latter won’t be solved overnight, a sharp drop in lumber prices should help get some stalled projects off the ground and help starts average 1.16m in 2021, a 16% increase on 2020. Rental demand is recovering quickly as cities and offices reopen and households complete delayed moves. With supply also tight, that will drive up effective rental growth to 2.5% y/y by end-2021, and 4.0% y/y by mid-2022.
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