- Morgan Stanley said home prices could fall by 5% next year if mortgage rates remain at this level.
- “In the longer term, if mortgage rates remain near 8%, these headwinds to demand could have a greater negative impact on home prices.”
- The average price of an existing US home rose 2.8% in September from a year earlier.
Buyers who have been sidelined from the housing market may get some relief in 2024, according to Morgan Stanley, as home prices could fall next year if mortgage rates remain close to their current levels.Thank you for reading this post, don't forget to subscribe!
The bank’s strategists pointed to the recent surge in mortgage rates, with the average 30-year fixed rate rising to 8% this week.
This is the highest borrowing cost faced by mortgage applicants since 2000, and experts say it is likely to worsen affordability in the short term.
Under Morgan Stanley’s base-case forecast, mortgage rates at these levels could stabilize home prices through the end of the year. And if mortgage rates remain around this level for a long time, there will be a greater impact on demand.
“In our view, even a 5% increase in inventory next year would lead to a 5% decline in home prices by December 2024 if it comes with zero growth in sales,” Morgan Stanley strategists said in a note this week. “
Rising mortgage rates sidelined a good deal of buyers and sellers from the housing market during 2022 and 2023.
This has led to a decrease in available supply, causing home prices to rise over the past year. But a longer period of higher rates could reverse that trend.
“In the longer term, if mortgage rates remain near 8%, the headwinds to demand that will arise could have a greater negative impact on home prices,” Morgan Stanley said.
However, that scenario may not come true. The bank projects the yield on 10-year US Treasuries to fall to around 3.9% by mid-2024, which is likely to push mortgage rates lower.
At the moment, house prices are still rising. The average price of an existing U.S. home rose 2.8% in September from a year earlier, according to data from the National Association of Realtors. This came as inventory declined 8% and home sales fell to their lowest level in 13 years.