US Housing Market Braces For Affordability As Mortgage Rates Ease: What Analysts Expect For 2024

As 2024 approaches, the U.S. housing market stands at a critical point, significantly swayed by the trends in mortgage rates.

Morgan Stanley’s recent analysis of the housing market anticipates a 3-5% reduction in home prices in the coming year, suggesting a shift towards more affordable housing options.

Currently, according to Freddie Mac’s latest figures, the average rate for a 30-year fixed mortgage is approximately 7.44%. With mortgage rates fluctuating above the 6% level for more than a year now, the housing market is preparing for substantial changes.

Also Read: Existing Home Sales Fall In October As Inventory Remains Tight

Jay Bacow and Jim Egan, Morgan Stanley strategists, highlighted in a recent podcast that the market’s reaction to these higher mortgage rates has been a noticeable decrease in housing supply.

A recent Bloomberg piece also sheds light on this trend, noting that homeowners are hesitant to give up the low-rate mortgages they obtained during times of historically low interest rates. This reluctance has played a part in creating the least affordable housing market since the 1980s, with sales figures inching towards historic lows.

Chart: U.S. Mortgage Rates, Existing Home Sales And House Prices

Why Lower Mortgage Rates Could Ease House Prices

Morgan Stanley’s experts believe that a decrease in mortgage rates could spur a rise in the availability of homes for sale. This increase in inventory is expected to counteract the prevailing ‘lock-in effect’ and bring stability to the market.

Bacow and Egan predict more affordable housing.

Goldman Sachs projects a modest drop in home prices, around 3%, by the end of 2024. Despite the adjustment, homeowners will likely not be compelled into selling. This could help avert any major downturns in the market.

However, if mortgage rates remain elevated and the economy faces downturns, potentially leading to a recession, there could be a softening in demand. Such conditions might result in a more significant decrease in home prices, with potential declines reaching up to 8%.

REITs Make A Comeback

November has unfolded as a notably positive month for real estate stocks, marking a significant turnaround in their performance, and indicating that market participants have started to anticipate potential improvement in the housing market next year.

The Real Estate Select Sector SPDR Fund XLRE has experienced a robust surge of nearly 10% so far this month. This rally has effectively wiped out the losses incurred in the first ten months of the year.

When compared to other sectors, this upturn in real estate stocks in November is only slightly overshadowed by the Technology Select Sector SPDR Fund XLK and the Consumer Discretionary Select Sector SPDR Fund XLY, which have risen by 13% and 11% respectively this month.

Delving deeper into industry-specific performances, home builders, represented by the U.S. iShares Home Construction ETF ITB, have seen an extraordinary increase of nearly 19% month-to-date. This remarkable growth positions them at the forefront of U.S. equity industry performance, on par with the VanEck Semiconductor ETF SMH.

Chart: Real Estate Stocks Soared In November

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