According to data issued on Tuesday by Mortgage News Daily, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell for a third week in a row, from 6.67% to 6.49%.
While this is good news for potential buyers holding off on making a purchase, analysts at Morgan Stanley advise waiting even longer — and it seems like consumers know this.
What Happened: A month ago mortgage rates were above 7%, but they have subsequently dropped by more than half a percentage point.
Even still, the number of mortgage loan applications dropped by 0.8% from the week before as borrowers waited for the so-called home price correction that experts such as Morgan Stanley were forecasting.
Read Also: Here's Where Morgan Stanley Bets The Housing Market Goes In 2023
“In our view, this [upcoming] housing recession will be different than the 2008-12 collapse,” Morgan Stanley's Ethan Harris wrote in a note to investors Tuesday. “Unfortunately, the early evidence suggests that a major price correction is likely in many markets.”
The national price index was still increasing 10.7% in September, according to S&P Corelogic's Tuesday house price report, which is generally regarded as the best such indicator.
However, national prices have been falling every month for the last three months in a row, dropping a total of 2.2%.
Morgan Stanley pointed out the extent of the decline is even more startling; prices have declined for two, three or four straight months in all 20 large cities.
“This is concerning,” the investment bank wrote. “Outside of the sub-prime mortgage crisis, home prices tend to be a sticky, lagging indicator. The drops are happening with a still robust labor market. Prices could fall even faster once a recession sets in.”
Why This Matters: A double-digit correction is not a major concern for homeowners who have owned their homes for a long period of time.
For those who already own a home, the spike in housing price inflation was a huge boon. The gains would only be forfeited for a year or two. The reversal, though, can be very painful for recent purchasers.
Read Also: Wait, What? Wharton Professor Jeremy Siegel Says The Housing Market Is Going To Do This
As a hedge against a potential slide in home value, a homeowner (or any investor) can purchase shares in rental properties for as little as $100 to earn passive income and build wealth over time: Here’s how you can get involved in earning income in the housing market.
Additionally, it doesn't exactly boost customer confidence when a household's most valuable asset becomes less liquid and depreciates, thus it would be advantageous for a homeowner to generate additional income from a property they do not own.
To read about the latest developments in the industry, check out Benzinga's real estate home page.
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