Thinking about buying a house? This is a great time to get informed about what's happening in the housing market. Experts at Morgan Stanley, a leading financial institution, recently shared their insights on the future of home sales, affordability, and prices. Here's a breakdown of their podcast on the midyear housing outlook, presented in an easy-to-understand way.
Housing Market 2024: Morgan Stanley Predicts Midyear Outlook
Are Mortgage Rates Going Down?
The good news for potential homebuyers is that mortgage rates are expected to decrease over the next year. Morgan Stanley predicts that by summer 2025, the 30-year fixed-rate mortgage will be around 6.25%, a significant drop from the current rate of about 7%. This decrease is linked to several factors, including:
- Cooling Inflation: Inflation is anticipated to slow down. This means the Federal Reserve may be more likely to cut interest rates, which would in turn bring down mortgage rates.
- Shifting Treasury Yields: The bond market is also expected to experience changes. Treasury yields are essentially the interest rates that the U.S. government pays on loans. When these yields go down, it often leads to lower mortgage rates as well. Morgan Stanley's analysts predict that 10-year Treasury notes, a key benchmark for mortgage rates, could fall to 3.75% by next summer.
What Does This Mean for Affordability?
The combination of lower mortgage rates and modest income growth is expected to create a significant improvement in affordability. In fact, Morgan Stanley suggests this could be one of the most favorable affordability periods in the last 30 years! However, there's a double-edged sword here.
Many current homeowners are already locked into incredibly low mortgage rates, often below 5%. For them, even with falling rates, selling their house and buying a new one may not make financial sense. They would be giving up their historically low rate and having to qualify for a new mortgage at a higher rate.
Additionally, the process of selling a home and buying a new one can be stressful and time-consuming. This may further discourage some homeowners from entering the market, even if they could technically afford to do so. So, while affordability is set to improve, it's important to consider these factors that could limit the number of homes available for sale.
Will More Homes Be Listed for Sale?
While affordability is expected to improve, the number of existing homes on the market may not significantly increase. This is because many homeowners with historically low mortgage rates are likely to be hesitant to sell, locking themselves into a more expensive loan if they buy a new home. The hassle of moving can also be a deterrent. They may decide to stay put and enjoy the financial benefits of their low rate for as long as they can.
What About Home Prices?
With more new homes becoming available, the rapid rise in home prices is likely to slow down. However, Morgan Stanley doesn't anticipate a price decrease. Instead, they predict a moderation in growth, with prices ending the year around 2% higher than now. This is because despite an increase in new construction, overall housing inventory is still considered tight.
A tight supply, even with more new homes on the market, can help to prop up prices. In addition, many existing homeowners are likely to stay put, further limiting the number of homes available for sale.
This could help to prevent a significant decline in prices. Looking ahead to 2025, Morgan Stanley predicts a slight increase in home price growth, up to 3%. This reflects their expectation for a continued healthy economy and ongoing demand for housing.
Key Takeaways
- Mortgage rates are expected to decrease, making homes more affordable for potential buyers. This is particularly good news for first-time homebuyers who may have been priced out of the market at higher rates.
- However, the affordability improvement may not be as impactful for current homeowners with very low mortgage rates. Even with lower rates, they may be hesitant to sell due to the transaction costs and hassle involved in moving. This could limit the number of existing homes on the market, potentially reducing the overall number of homes available for sale.
- The supply of new homes is likely to increase, potentially leading to more sales of new homes compared to existing ones. This could be a positive trend for buyers who are open to purchasing a newly constructed home.
- Home price growth is expected to slow down but remain positive. This is due to a combination of factors, including a continued tight supply of existing homes and an anticipated healthy economy. While some moderation in price growth is expected, buyers should not anticipate a significant price decline.
Overall, the outlook for the housing market appears cautiously optimistic. While affordability is expected to improve, particularly for first-time homebuyers, potential buyers should be aware of some lingering complexities. Inventory constraints, particularly for existing homes, could limit overall buying opportunities.
Additionally, many current homeowners may be hesitant to sell due to their historically low mortgage rates, further limiting the number of available properties. Despite these potential hurdles, a projected increase in new home construction and a slowdown in home price growth could create a more balanced market for buyers who are prepared to navigate the current landscape.
So, Should You Buy a House After Seeing this Outlook?
The decision of whether or not to buy a house depends on your individual circumstances and goals. Here are some factors to consider in light of Morgan Stanley's insights:
- Are you a first-time homebuyer? If so, with mortgage rates dropping and affordability improving, this could be a good time to enter the market. Just be prepared for some competition, especially for desirable properties.
- Are you looking to move up to a larger home? This may be a more challenging scenario. While affordability may improve slightly, you'll likely still be giving up your current low mortgage rate. Additionally, with existing home inventory potentially staying flat, you may have a harder time finding the perfect house.
- Are you in a strong financial position? A down payment is typically required to buy a house. Having a healthy emergency fund is also important, unexpected expenses can arise during the homeownership journey.
- Do you plan to stay in the house for a long time? The real estate market has its ups and downs. If you plan to hold onto the house for several years, you'll weather any short-term fluctuations in value.ownsizing and looking for a smaller property?
By carefully considering your financial situation, lifestyle needs, and future plans, you can make an informed decision about whether or not buying a house is the right move for you in the current market.
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