As 2024 approaches, the U.S. housing market stands at a critical point, significantly swayed by the trends in mortgage rates.
Morgan Stanley’s recent analysis of the housing market anticipates a 3-5% reduction in home prices in the coming year, suggesting a shift towards more affordable housing options.
Currently, according to Freddie Mac’s latest figures, the average rate for a 30-year fixed mortgage is approximately 7.44%. With mortgage rates fluctuating above the 6% level for more than a year now, the housing market is preparing for substantial changes.
Jay Bacow and Jim Egan, Morgan Stanley strategists, highlighted in a recent podcast that the market’s reaction to these higher mortgage rates has been a noticeable decrease in housing supply.
A recent Bloomberg piece also sheds light on this trend, noting that homeowners are hesitant to give up the low-rate mortgages they obtained during times of historically low interest rates. This reluctance has played a part in creating the least affordable housing market since the 1980s, with sales figures inching towards historic lows.
Chart: U.S. Mortgage Rates, Existing Home Sales And House Prices
Why Lower Mortgage Rates Could Ease House Prices
Morgan Stanley’s experts believe that a decrease in mortgage rates could spur a rise in the availability of homes for sale. This increase in inventory is expected to counteract the prevailing ‘lock-in effect’ and bring stability to the market.
Bacow and Egan predict more affordable housing.
Goldman Sachs projects a modest drop in home prices, around 3%, by the end of 2024. Despite the adjustment, homeowners will likely not be compelled into selling. This could help avert any major downturns in the market.
However, if mortgage rates remain elevated and the economy faces downturns, potentially leading to a recession, there could be a softening in demand. Such conditions might result in a more significant decrease in home prices, with potential declines reaching up to 8%.
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