over 1 year ago • 1 min
With the popular 30-year US mortgage rate now near 7% – its highest in 16 years – and with the pace of home sales slowing sharply, all signs would seem to be pointing toward a potential collapse in the housing market. Yet, analysts from Morgan Stanley seem to believe otherwise. In fact, they say fears that house prices might fall off a cliff are overblown. Now, they don’t exactly see prices gaining, but they estimate a dip of just 3% next year.
When all measures of housing activity seem to be slowing, it’s understandable that investors might turn bearish and fearful of a collapse in home prices. Housing affordability data, which shows the year-to-year change in monthly mortgage payments as a share of average household income (blue bars), seem to back that up. It shows that affordability has deteriorated at a pace not seen in at least 30 years. And with it becoming much harder for people to purchase homes, you’d expect that to curb demand.
But even with that diminished demand, three surprising factors might help keep US home prices steady today, compared to the global financial crisis in 2008-09. Firstly, the vast majority of existing homeowners have fixed-rate mortgages, so their payments won’t increase even as rates rise. Secondly, lending standards today are much more stringent – a result of regulations that followed the 2008-09 crisis. Lastly, there is still a definitive, or “structural”, shortage of housing in the US. The collective absence of forced sellers and low housing inventory means that house prices might hold up remarkably well, even as the economy softens.
So if you’re still looking for a bargain, you might have to wait a little longer.
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