Elliot Clarke, Research Analyst at Westpac, suggests that housing prices in US are likely to continue outpacing incomes, while sales activity is likely to be held back by affordability and supply.
Key Quotes
“Since mid-2016, the US 30-year mortgage rate has followed the 10-year Treasury yield higher, rising a little over 100bps. At its current level, the 30-year mortgage rate is in line with the previous peak for this cycle, seen in mid-2013.”
“While this is a significant move, on a longer time frame, mortgage rates are still best assessed as historically low. Prior to the GFC in 2007, the 30-year rate was around 200bps higher than today; and back in mid-2000 it was 400bps above the current level.”
“It is not only interest rates that are at historically supportive levels; employment and household debt are as well.”
“With regards to interest rates; income; debt and prices, established US households are therefore in a strong position to make their housing aspirations a reality, supporting price and activity growth. That said, a number of headwinds remain, limiting the scale and pace of future gains for sales/ construction activity.”
“New home sales remain in a solid uptrend, but at their current level are still only equal to that of the mid-1990’s – a time when the population was a third smaller than it is today. Both existing and new supply to market is therefore a significant impediment to sales activity, and likely to remain so going forward.”
“Given the above, continued gains for house prices in excess of income growth is likely despite higher interest rates. This will aid household wealth for those already in the market. For new entrants however, affordabiity will remain a pressing issue. While affordability is unlikely to stop price growth, it will result in new construction activity being split between single homes for owner occupiers in suburban locations and build-to-let developments in big (expensive) cities.”
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