Morgan Stanley analysts previously expected national home prices to fall 4% in 2023, as the housing market continued to crater, and reaffirmed their pessimistic forecast in April of this year. But the analysts recently changed their tune in a big way: They now say housing prices could rise up to 5% for the year.
The reversal, made in a research note earlier this week, comes as mortgage rates continue to rise, hitting 8%, the highest level since 2000. The increase has had a profound impact on the housing market, but not necessarily as many people had expected.
For one thing, it’s keeping the supply of homes for sale tight largely due to the lock-in effect, which prevents homeowners that have lower mortgage rates from selling because it would require buying a new home at a much higher interest rate. That’s helping to prop up the market by creating big demand for the relatively few houses for sale, further deteriorating affordability.
Morgan Stanley isn’t the only financial institution to suggest home prices will likely increase. Roger Ashworth, a managing director at Goldman Sachs, recently wrote that despite affordability being worse than in the 2008 housing crash, housing itself is in a much stronger position, largely due to a low supply of homes for sale.
“Absent any negative shocks to the broader economy that would either boost excess supply of homes on the market or fuel an uptick in unemployment, we continue to expect home prices to rise at a slow pace,” he wrote. And he predicts that by the end of this year, home prices will rise 1.8%, with a 3.5% increase by the end of 2024.
OK, maybe home prices will go up. But who is buying?
There’s only so many rich people + younger people that can qualify with 8% mortgages.
Seems like it’s just musical chairs.
I’m having a hard time agreeing on the impact of the lock-in effect to the house prices.
On one side I completely agree that less people will move because of the high rate and therefore there is less inventory. But these people are both sellers and buyers at the same time. One less house on the market, but also one less buyer competing for the other houses.
The problem with lower rates however is that, if the payment on the new house is very low, I don’t need to sell my current house. I can just buy a second house and maybe rent my current one. This will create a new buyer, but no new house on the market.
It seems to me that higher rate will reduce inventory, but in the long term (how long I really don’t know) there will always be people who need to sell (death, divorce, investments…) and whoever is going to buy is less likely to hold on his previous property since he may need the money to finance a lower amount or not finance at all.
Whoever need to sell now can not expect the same competition among buyers as with low rates and may have to lower the price to sell in a reasonable time which will result in lower comps.
I don’t have a clear opinion. Online I read everything and the opposite of everything. I think it’s really hard to predict the impact of these rates and even harder to predict when we will really see their effect (how long the sellers can wait to get their price)
Agree – some will win, and some will lose.
It’s estimated that by 2035 approximately 75% of boomers will have shuffled off the planet, and we have about a nearly 80% home ownership rate.
Just bide your time
Sellers of existing homes are facing more competition from new homes, at least in areas where there are new homes. Homebuilders have to sell regardless of the market, so to move their product they are offering more incentives, options, interest rate buydowns, and building at lower price points.
Also how many buyers are being roped into 8% mortgages with the promise of, “you’ll be able to refinance into 3% in a year or two.” Interesting to see how that turns out.
The future of the market relies on the rate buydown program. Somebody has to pay for the Fed’s insistence on crashing the housing market, and it will be those who have to pay the rate buydown to make homebuying palatable for buyers.
Stay tuned – my next blog post will cover!
And thank you Ross for being a longtime contributor here!
My first home was purchased in 1983 with a 30-year fixed at 13.5%. I refinanced every couple of years until I sold it in 1997, by which time the rate had come down…to about 7%.
For every buyer, there must be a seller. That is a fact. Market forces and supply and demand ultimately establish price. Will there be demand in the future that is higher than the supply of homes or will the supply of sellers exceed buyers? That is the call you have to make over the next 5 years if you’re a flipper or market timer, 5-15 years if a medium-term owner and 15+ years if a buy and hold person. Know your personal objectives for the holding period and what you think the future holds. My crystal ball is foggy on the future. Cash flow is the key. If you have cash flow you don’t have to sell in a bad market. Kind of hard to lose money holding a California SFR residence longer than 20 years unless the house burned down or collapsed.
I process mortgages at WF for 30 years now.
The amount of stress and pain out there is much worse than in 2008.
Multi family will go under first. It’s already happening. It will be bought for pennies and those new owners will be able to lower the rents bringing down rents everywhere.
The next in line after multi family where I see huge stresses building up are Airbnb investors. There is an avalanche of Airbnb non performing properties in the pipeline. Just give it some time. This will bring down the housing market imho. End of 2024 will see houses going for 30 to 50% less than today. Mark my words. I see the numbers.
Ok, that’s the last one. Let us know your new blog address though.
Several home price forecasts for next year hover between more than a 1% increase to less than 4% increase—that is, except for the AEI Housing Center. The public policy think tank expects a 6% increase in home prices for 2023, followed by a 7% jump in 2024—an upward revision compared to that of Morgan Stanley and Goldman Sachs.