The U.S. Housing Market Slowdown

Jim Egan and Jay Bacow, co-heads of Securitized Products Research at Morgan Stanley, discuss the cooling housing market. Despite record-high home prices, the pace of growth is slowing due to increasing supply and stalled demand. While the spring selling season typically sees increased supply, the year-over-year growth is exceptionally high, exceeding all but one instance in the past 40 years (the Great Financial Crisis). Existing home sales have plateaued, and the number of transactions is at its lowest since 2009. Although deceleration in home price growth is nationwide, geographical nuances exist, with Florida and Texas showing higher inventory levels and the Northeast and Midwest lagging. New home prices have been decreasing year-over-year for 18 months, and homebuilders are increasingly offering mortgage rate buy-downs, impacting affordability and potentially future resale values. Despite these trends, the analysts predict positive home price appreciation (HPA) for the year, forecasting a range of -3% to +5%, with a base case of +2%.