Key Conclusions / Implications
- A sharp rise in mortgage rates in 2018 (+95bp YoY) is negatively impacting homebuyer affordability and creating headwinds for parts of the housing market, including new housing starts and homes sales.
- While some parts of the housing market will slow with higher rates, others should benefit. We expect higher rates will drive incremental demand for single-family rentals (SFR) as households find attaining homeownership more economically challenging.
- We do not expect higher rates to materially impact the positive trends in new household formations, which should remain resilient due to continued demographic shifts and healthy economic growth.
- While home price appreciation (HPA) and mortgage rates have historically exhibited little correlation, we expect HPA to decelerate from the recent range of 5% to 6% and forecast HPA of ~4% CAGR through 2023.
- We believe the downside risks to home prices today are far lower than in 2006 due to more favorable current and projected supply/demand imbalances, less leveraged consumer balance sheets, and tighter mortgage credit conditions.