Housing Market Affordability Set to Improve in 2024, Predicts Morgan Stanley's Chief US Economist

According to Yahoo News, housing market affordability is expected to improve in 2024, as predicted by Morgan Stanley's chief US economist, Ellen Zentner. In a recent market podcast, Zentner stated that growth in inventory due to stronger homebuilding activity will offset the increase in demand, leading to improved home affordability. Home sales are expected to pick up in the second half of 2024 and further into 2025, with prices seeing modest declines. Zentner also predicted an increasing supply of homes in 2024, as inventory has been tight due to the spike in mortgage rates over the past year. With fewer existing homes on the market, new construction has been the main source of additional supply, and Morgan Stanley expects homebuilding activity to grow stronger next year. As a result, 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. Mortgage rates have come down recently as hopes that the Federal Reserve will soon pivot to rate cuts sent Treasury yields plunging. Markets will see those cuts become a reality by mid-2024 as inflation continues to decelerate, allowing the Fed to keep rates steady and finally make an initial quarter-point reduction in June, according to Zentner. This will be followed by another 25-basis-point cut in September, and starting in the fourth quarter of 2024, the central bank will likely lower rates by that amount at every meeting, eventually bringing the real rate down to 0.4% by late 2025.