Lower mortgage rates to gradually thaw frozen market

We expect mortgage rates to continue falling, dropping below 6% in 2026. Lower borrowing costs will breathe some life into the market, but stretched affordability and tight supply due to mortgage rate 'lock-in' will continue to hold back activity. Although we expect existing home sales to rebound, we forecast that they will still be a muted 4.8 million even in 2026. The new homes market will fare better, benefitting from the shortage of resale home listings, which will continue to push borrowers towards newbuilds. We expect new home sales to rebound to 750,000 annualised by end-2026, providing support to single-family home construction as well. Nevertheless, home listings have crept up this year and we expect that trend to continue. Steadily rising supply will pour cold water on house price growth, which we expect to remain muted this year at 3%, before strengthening slightly to 4% in 2025 and 2026. In the rental market, even though demand remains strong it is being outpaced by supply, but that trend will start to reverse in 2025. We expect the vacancy rate to top out at 6% at the end of this year, before falling back to 5% by end-2026. Falling vacancy will support a pick-up in rental growth to 3.5% in 2026. With capital values also set to start rising again, total returns should turn positive in 2025.