We had hoped that the decline in U.S. housing demand would flatten towards the end of the year, but the 130bp leap in mortgage rates in the past six weeks has forced us to abandon this idea. The MBA’s purchase applications index slumped at the end of September, capping a nasty 7.7% fall over the month as a whole. We see little relief until the beginning of next year, at the earliest. Our chart of the week shows that the trend in the MBA index, with our forecast through Q1 23, points to a further slide in home sales to just 4.5M, down from 5.5M in August. We think activity in the housing market will be crushed to such an extent that discretionary activity will all but disappear. This will leave demand driven solely by people purchasing for job relocation reasons, or out of family necessity. This is what happens when the monthly payment needed to buy a median-priced home increases by just over 50%— roughly $840—in a year.
Ian Shepherdson, Chief U.S. Economist