Home Prices Set to Jump to New All-Time High, Says Morgan Stanley
According to a report by Morgan Stanley, home prices are predicted to experience a significant increase of 0.7% year-per-year, reaching a new all-time record. The housing market, already grappling with affordability issues, is set to worsen due to the delayed impact of mortgage rates.
Researchers at Morgan Stanley highlighted that it takes approximately seven weeks to close a mortgage. Furthermore, some housing data is released with a two-month delay, exacerbating the issue. This means that the spike in mortgage rates witnessed last month, reaching the highest level since 2001, will take time to manifest in home purchases.
The Case-Shiller Home Price index, an influential metric in the housing market, is one of the datasets that come out with a two-month delay. Consequently, any deals closed in October, based on mortgage rates from August, may not be reflected in data reports until December.
Mortgage rates play a significant role in housing affordability, which includes factors such as home prices and homebuyer incomes. Although the housing market has seen declines in affordability, this year had not witnessed a further deterioration until now.
Jim Egan, from Morgan Stanley, commented, “Affordability is still very challenged, and now it’s started to get worse again.” He added, “By our calculations, the monthly payment on the median priced home is up 18% over the past year, and that’s the first time that deterioration has accelerated since October of 2022.”
Aside from the impact of mortgage rates, the limited supply of housing stock is also contributing to the upward trajectory of home prices. Morgan Stanley predicts a 0.7% year-over-year rise in the Case-Shiller index, reaching a new record high in the next report.
For the remainder of the year, Morgan Stanley foresees two scenarios for home prices, with a base case of prices remaining flat and a bullish case of a 5% increase. Egan stated, “The evolution of the inputs since, particularly the supply point here, continues to be tighter than what was already pretty tepid expectations on our part.”
However, experts do not anticipate improvement in affordability until mortgage rates experience significant adjustments, which may not happen in the foreseeable future. The Federal Reserve is expected to maintain elevated interest rates as they monitor inflation, which could subsequently keep mortgage rates at higher levels.
With home prices and affordability concerns persisting, the housing market remains an area of intense focus for both industry experts and potential homebuyers.
Source: Business Insider