Home Affordability Still Under Pressure

Jay Bacow and Jim Egan, co-heads of Securitized Products Research at Morgan Stanley, discuss their outlook for mortgage rates and the U.S. housing market in 2026. They forecast the 30-year fixed mortgage rate to end 2026 around 5.75%, which should improve affordability from 2023 levels, though it will remain a relative improvement. While transaction volumes are expected to increase by about 3%, the "lock-in effect" and rising inventory will temper home price appreciation, projected at 2% for 2026. They also address potential government interventions, such as 50-year mortgages and mortgage assumability, noting their limited practical impact, and discuss other sources of mortgage demand like GSEs and domestic banks.