We expect mortgage rates will hold close to 7% over the remainder of the year, leaving affordability at its worst since 1985. That will lead to another sharp fall in activity. As the economy dips into a mild recession in 2023, sales and single-family starts will post their weakest years since 2011 and 2014 respectively, before starting to recover in 2024. Without a significant easing in lending standards, stretched affordability will continue to reduce purchasing power and weigh on house prices. We forecast that prices will fall 8% by mid-2023. This will push more buyers to the rental sector, but they will hit affordability constraints there too. Alongside stagnant employment and a surge in new supply, that will prompt a 0.5% fall in rents in 2023. Thereafter, a recovery in the labour market will help rental growth reach 1% y/y by end-2024.
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