Analysts at Morgan Stanley (NYSE:MS) project a more robust U.S. housing market in the coming year, anticipating mortgage rates to fall from their current highs and incomes to rise. This forecast, shared today, suggests an environment ripe for increased housing activity that could lead to a notable shift in home affordability not seen in recent decades.
The financial institution's outlook is based on several factors that could contribute to a healthier market for homebuyers, including an increase in housing listings. They predict a moderate decrease in home prices by about 3%, which could open the door for many who have been priced out of the market during times of soaring rates.
In terms of sales, Morgan Stanley expects new home sales to surge by 7.5% and existing home sales to see a growth of 2.5%. Moreover, the forecast includes a significant rise in single-unit starts, which are anticipated to jump by 10%, reaching close to 975,000 by year's end.
Despite this optimistic view, analysts do caution that there remains the possibility of a less favorable outcome. Should economic conditions worsen or mortgage rates fail to decline as expected, there's a risk that home prices could fall even further. They warn that an additional drop of up to 8% from the already reduced projections for this year could usher in a recessionary climate, underscoring the delicate balance of the housing economy.
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