The sustainable investor for a changing world

Front of mind | Article - 4 Min

Covid-driven pressures keep US house prices high in 2022

Several factors will likely keep US house prices on an upward trajectory this year. Still low mortgage rates as well as the post-pandemic exodus out of urban areas are sustaining demand, as do working-from-home business models, while the supply of homes for sale has dropped to less than two months’ worth. This could have consequences for US inflation and possibly monetary policy.

Home prices across the US were up by 20% year-on-year, according to the latest data (see Exhibit 1), supported by (until recently) still low mortgage rates, strong demand and low inventories of homes for sale. This has implications for inflation. Shelter, which also includes rents, makes up nearly a third of the CPI inflation basket, and 40% of core CPI.[1] Thus even small increases in rent and home prices can have noticeable effects on overall inflation.

Source: Zillow Research; June 2022

Mortgage origination rates are about 220bp higher than they were at the 2020/2021 low. However, at around 5.20%, today’s rates are still low when compared to rates over the past 40 or 50 years.[2]

The current high demand is stemming from pandemic-induced trends: people seeking less densely populated areas, and more generally, moving out of urban areas.

Alongside this, many businesses are adopting hybrid working models that allow workers to operate from their homes for 20% to 50% of the time and in some cases longer. Another upshot from the pandemic is that homeowners are more in need of greater space as families are staying home for work and schooling.

The overhang of underwater borrowers selling properties in distress due to the global financial crisis has long dissipated. The supply of homes for sale peaked at 12 months’ worth of supply in 2011, but more recently, supply has dipped to below two months. The number of existing homes for sale has dipped to below one million for the first time in 20 years.

Strong employment and home finances mean low mortgage deliquencies

The unemployment rate of 3.6% is at a post-pandemic and near a 50-year low. US labour force participation has been inching higher and wages have been rising at the fastest pace in many years.

Consumer balance sheets are generally in good shape and anyone who wants a job can have one. Home prices have been rising at a steady clip. As a result, very few borrowers are in a negative equity situation where the value of their mortgage exceeds the value of their house.

Borrowers’ delinquencies have trended lower and are close to pre-pandemic levels for FNMA and Freddie Mac borrowers (Exhibit 2). Delinquencies for multi-family Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) borrowers are low as the fundamentals in apartment rentals are also strong.

Source: FRED economic data; June 2022

Fundamental outlook for US residential credit is positive

Borrowers generally have jobs and are enjoying income growth and substantial home price appreciation.

A marked percentage of borrowers took advantage of the low interest rates of the last two years and locked in 30-year fixed rate financing.

New housing supply has been slow to come on line due to a difficult regulatory framework, labour shortages and supply chain issues for building materials, so there is a supply/demand imbalance in housing. We expect home prices to continue rising in 2022, although not at the 20% rate we have seen over the last two years.

Affordability is becoming a challenge for borrowers as home prices have been rising faster than incomes and mortgage rates have risen sharply this year. We believe that while this will slow the rate of home price appreciation, it will not turn down.

One other impact this is having is a ‘lock-in’ effect related to pre-payments. With the rise in interest rates, less than 2% of the outstanding mortgage universe has an economic incentive to refinance.[3]

We think cash-out refinancing activity will be largely curtailed as borrowers will not want to give up their low rate mortgages to extract home equity. We instead foresee borrowers tapping into credit lines and leaving their primary mortgage loans intact.

It will also be harder for borrowers to move because mortgages are not portable. Moving house would mean giving up attractive low-cost financing.

As a result, we expect pre-payments to be slower than expected. Low coupon interest-only mortgage securities in particular are one way to take advantage of this ‘lock-in’ effect.

In a rising rate environment, mortgage-backed securtities (MBS) tend to outperform other fixed income asset classes due to its shorter duration and the benefits of slower prepayments and lower supply.

Unlike corporate or Treasury bonds, MBS are amortising assets with monthly cash flows. Each month, investors receive interest payments as well as scheduled and unscheduled principal repayments. These frequent, interim cash flows give MBS investors the opportunity to continuously reinvest capital as rates rise. This is a major difference from corporate or Treasury bonds.


[1] Note: On average, housing is 16% of headline PCE and 18% of core PCE; the PCE price index is the inflation measure most closely tracked by the US Federal Reserve; sources: Housing Prices and Inflation | The White House, data on personal consumption expenditures (PCE) by type of product

[2] 30-year fixed mortgage rate; data as of 9 June; source: Mortgage Rates – Freddie Mac

[3] According to the Truly Refinanceale Index


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Related insights

Fixed income outlook: the hunt for inflation
US economy to motor on, though bumps in the road remain

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2023 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP PARIBAS ASSET MANAGEMENT is the global brand name of the BNP Paribas group’s asset management services. © 2023 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP Paribas Asset Management seeks to integrate environmental, social and governance (“ESG”) factors into all of our portfolios as a means to mitigate certain short, medium and long-term financial risks, identify better long-term investments, and encourage more responsible corporate behavior. We will never subordinate our client’s interests to unrelated objectives. Certain issuers and industries are excluded from our actively managed portfolios based upon our view of their ESG performance and risk profile. As a result, we may pass up certain opportunities when these excluded issuers or industries are in favor. Due to significant gaps in disclosure regimes around the world, we may need to rely upon voluntary disclosures by issuers, which are often not audited. We therefore may not have consistent access to complete, accurate or comparable information about the ESG performance of our holdings. Please consult the applicable offering document for more information about the specific ESG strategy employed by each investment strategy since a given strategy may not have specific ESG guidelines, and investments are not limited to securities that are ESG compatible.

To access insights from our teams worldwide visit:
Explore VIEWPOINT today