Home > Resources > Video Library > Quick Takes: Will Rising Rates Hurt the Housing Market?
Viewpoints

Quick Takes: Will Rising Rates Hurt the Housing Market?

PIMCO is constructive on the U.S. housing market for three reasons: price, supply and demand. Daniel Hyman, co-head of PIMCO’s agency mortgage portfolio management team, provides insight into the factors that inform our favorable view of the housing market.

More from this section

Read Transcript

Text on screen: Quick Takes - Will rising rates hurt the housing market?

Daniel Hyman, Co-head, Agency Mortgage Portfolio Management: One of the questions we get from investors is, given the recovery we've seen in U.S. residential real estate since the financial crisis, are we still optimistic on U.S. housing? The short answer is, "Yes."

Graphic that illustrates supply and demand of the housing market

When we look at it from a price perspective, housing remains attractively priced. When we look at the supply and demand technical, there still aren't enough houses for the expected demand. PIMCO remains optimistic on U.S. residential real estate.

Chart: The line graph shows the price-to-rent ratio, which is the ratio of home prices to annualized rent in a given location, from 1993-2017, with renting and buying neck and neck until 2011 when it became significantly cheaper to buy.

When we look at home prices, housing remains affordable relative to where it was before the financial crisis. One of the ways many people think about housing is, is it cheaper to buy a home or is it cheaper to rent? And what we see is, is that it is still cheap today to buy rather than to rent.

Now interest rates are rising, making home purchases a little bit less affordable, but they would need to rise substantially more to offset the cheapness. 

Interest rates would need to rise about 1.5% to normalize the long-term relationship.

A second reason PIMCO has a favorable view of US residential real estate is we've been underbuilding since the financial crisis.

Chart: The chart shows cumulative housing starts minus household formations and demolitions from 2008-2018 and highlights the undersupply of housing since September 2008.

When we look at the number of homes needed for household formation — this is people moving out of their homes and going out on their own, creating a new household, or immigration — we see there hasn’t been enough homes built to meet that demand. We've been under-building since the financial crisis, under-building by one and a half million homes.

One of the ways we look at future supply is we look at the amount of permits that are filed, and will there be enough homes in the future to meet that household formation demand?

Graphic that illustrates supply and demand of the housing market.

And what we see today is we're still not expected to build enough homes to meet that demand. This favorable technical we believe is supportive of US residential real estate, and leaves us with a favorable view of US housing.

To summarize, PIMCO maintains its optimistic view on US residential real estate, for three main reasons: 

First, looking at housing on a national level, housing remains cheap to buy versus rent. 

Second, household formations remain robust, meaning there's lots of households being formed, people going out and needing a home.

Third, on the supply side we're not building enough homes to meet that household formation demand. 

It's for these three reasons — price, supply and demand — that PIMCO maintains its optimistic view on US residential real estate.

For more information, visit pimco.com

Filters: Reset All

Filters

Close Filters Dropdown

  • Tags

    Reset

    Close

  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close

  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • Q
  • R
  • S
  • T
  • W
  • Z
Clear
Berdibek Ahmedov
Product Strategist, Equities and Multi-Asset
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Del Anderson
Credit Analyst
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Philippe Bodereau
Portfolio Manager, Head, Credit Research Europe
Allison Boxer
Economist
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Josh Davis
Global Head of Risk Management
Laura Deneke
Sr. Vice President, Product Strategist
Pramol Dhawan
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
David Forgash
Portfolio Manager
Preeyam Gandhi
Strategist
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Gregory Hall
Head of U.S. Global Wealth Management
Mary Hoppe
Account Manager
Ray Huang
Portfolio Manager, Real Estate
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Nicola Mai
Portfolio Manager, Sovereign Credit Analyst
Raji O. Manasseh
Equity Strategist
Samuel Mary
ESG Research Analyst
Kyle McCarthy
Alternative Credit Strategist
Mohit Mittal
Portfolio Manager, Multi-Sector
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Gavin Power
Chief of Sustainable Development and International Affairs
William Quinones
Product Strategist
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Libby Rodney
Steve A. Rodosky
Portfolio Manager
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Senior Advisor
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Cathy Stahl
Global Head of Marketing
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Jessica K. Tom
Senior Credit Analyst
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Jerry Tsai
Client Solutions and Analytics
Matt Tuten
Portfolio Manager
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Jerry Woytash
Portfolio Manager, Short-Term Desk
Kirill Zavodov
Portfolio Manager
Seray Incoglu
Portfolio Manager, Commercial Real Estate
Mike Cudzil
Portfolio Manager
Ben Bernanke
Chair, Global Advisory Board
PIMCO
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Sustainable Development Goals at PIMCO
Forecast Favors Fixed Income
Positioning Portfolios for 2024
The Hard Truth About Soft Landings
Higher Yields Today Create Opportunity
Specialty Finance: Seize Today’s Compelling Entry Point

Load more results Load {{cCtrl.fetchResults}} more results