Americans May 'Never See' Cheap Housing Again, Says Market Commentator As Morgan Stanley Mortgage Rate Predictions Come Above Pre-2022 Levels
Market commentator Bull Theory highlighted Morgan Stanley‘s latest housing outlook on Sunday, saying the firm sees little chance of U.S. housing affordability returning to pre-2022 levels even under more favorable mortgage rate scenarios.
Morgan Stanley Sees Affordability Staying Elevated
In a post on X, the market commentator said Morgan Stanley modeled mortgage rate scenarios of 4%, 5% and 6%, with housing affordability failing to return to pre-2022 levels in each case.
In Morgan Stanley’s base case, mortgage rates ease toward 5%, but mortgage payments would still account for about 21% of household income, well above the historical average of around 15%.
What’s Keeping Housing Unaffordable
About 70% of existing homeowners hold mortgages with rates below 5%, discouraging many from selling and keeping resale inventory constrained, according to Morgan Stanley’s Senior Economist and Strategist Sarah Wolfe.
The Bull Theory account said that higher long-term interest rates, Millennials and Gen Z competing for limited housing supply, restrictive land-use policies, slow permitting and rising insurance costs linked to climate risk are among the factors keeping housing affordability under pressure.
“If the Fed holds rates higher for longer to fight inflation, mortgage rates stay elevated too, extending this exact lock-in effect instead of easing it,” the market commentator added
Morgan Stanley said affordability gains are likely to stall around 2027, adding that the lack of housing turnover has pushed the market to its slowest pace in roughly 40 years.
The Bank of America expects the Federal Reserve to raise interest rates by a total of 75 basis points before the end of 2026.
First-Time Buyers Feel The Squeeze
The bank said financing a median-priced home now costs buyers about $2,000 a month, nearly double the monthly payment from five years ago.
It added that first-time buyers are taking on larger mortgage balances, with the average reaching $334,000 in 2024, while credit standards have tightened, and buyers are increasingly moving to lower-income ZIP codes in search of affordability.
Homeownership has been declining since 2024, particularly among 35-to-44-year-olds, while the country is gradually shifting toward a larger share of renters despite rising rents, Morgan Stanley added.
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