2024 Housing Market Predictions: Home Prices to Drop, Boosting Affordability, According to Morgan Stanley’s Chief US Economist

Aerial view of a residential area with houses in the Phoenix suburb of Chandler.

Aerial view of a residential area with houses in the Phoenix suburb of Chandler.Getty Images
  • Housing market affordability is expected to improve in 2024, Morgan Stanley’s chief US economist said.

  • Growth in inventory as homebuilding activity grows stronger will offset an increase in demand.

  • Home sales will pick up in the second half of 2024 and further into 2025, as prices see “modest” declines.

A change of fortune will be in the cards for the housing market next year, as noted by Morgan Stanley’s chief US economist on the precipice of 2024. Housing affordability is expected to thaw the somewhat stagnant housing market landscape, as noted in Ellen Zentner’s recent market podcast.

“We expect home sales to be weak in the first half of next year, but activity should pick up in the second half and further into 2025, and that’s primarily because affordability will improve,” she said. This improvement will be underpinned by an expected increase in the housing supply in the upcoming year, a shift largely due to the recent spike in mortgage rates that had kept many buyers and sellers on the sidelines.

With fewer existing homes on the market, new construction has been the main source of additional supply. Furthermore, Morgan Stanley anticipates that homebuilding activity will pick up significantly in the year ahead.

“Home prices should see modest declines as growth in inventory offsets the increase in demand. By 2025, with lower rates, existing home sales should rise more convincingly,” Zentner added.

While the past year has been an arduous period for the housing market due to escalating mortgage rates, leading to an 8% peak in October, a noticeable slowdown in prices and rates is undergoing a transformation, prompted by the expectation of the Federal Reserve implementing anticipated rate cuts in 2024. This pivot in strategy will lead to an initial quarter-point reduction in June, followed by another 25-basis-point cut in September, gradually reaching a real rate of 0.4% by late 2025.

Other positive themes playing out next year will be improving business investment and equipment spending, resulting in the potential turnaround for business, as well as a relaxation of banks’ tightened lending conditions after many companies successfully avoided refinancing their debt at ultra-high interest rates.

However, there will be a notable slowdown in consumer spending due to a cooling labor market and prolonged higher rates, resulting in greater pressure on debt servicing costs for consumers. Additionally, GDP growth is projected to slow from 2.5% this year to 1.6% in 2024 and 1.4% in 2025.

Reference: Business Insider


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