Morgan Stanley, one of the world’s largest investment banks, has changed its expectations for U.S. housing prices next year and is now forecasting steeper declines than previously thought. thought before.
Last August, the Manhattan-based multinational investment bank and financial services company predicted that real estate prices would fall 2% next year. Morgan Stanley released a report containing a bearish scenario in which house prices could fall by as much as 5% next year.
This scenario refers to the possibility that the U.S. economy will enter a bear market, a declining situation in which stock prices continually fall, the economy slows, and unemployment rises.
U.S. housing prices remain historically high and well above what many can afford, especially since mortgage rates have not yet fallen and are still breaking records. As of September 30, according to the latest data available on Zillow, the average home value in the United States was $348,539, up 1.1% from last year.
“If home sales remain at these levels for an extended period of time, we will become even more dependent on maintaining inventory at historically low levels to prevent housing prices from falling,” the report said. “In our view, even 5% growth in inventory next year would result in a 5% decline in house prices by December 2024 if accompanied by zero increase in sales.”
Morgan Stanley is essentially referring to the fact that while house prices fell between last June and May this year, amid what experts call a “correction” in the housing market, the average cost of housing has rebounded due to stubbornly low supply. of housing combined with continued strong demand.
Inventories have been historically low on the market for some time now, due to the pandemic. Although new construction projects took off this year, it was not enough to close the existing gap between supply and demand.
Morgan Stanley analysts stressed that this was not their base case.
“Our interest rate strategy team expects 10-year Treasury rates to fall to 3.9 percent by the middle of next year and, in this scenario, rates mortgages would also decline from these levels,” the report said.
“As we pointed out earlier, the initial stock reaction to the rate hike was a further decline, not an increase. But if rates were to remain high and demand weak, we would focus even more on l ‘offer.”
The company did not share details of its base case scenario in the report. News week Friday, contacted Morgan Stanley for comment via email.
According to Redfin, the median U.S. household income in 2022 was around $75,000. A recent Redfin study found that a typical American household would need to earn $40,000 more to be able to afford the cost of a typical home, for a total of $115,000 per year.
It is unlikely that a price drop of even 5% would solve the affordability crisis in the United States.