Doctor Hazmat

Morgan Stanley is warning that Americans may not see cheap housing again anytime soon. Market commentator Bull Theory highlighted the firm’s latest housing outlook, saying Morgan Stanley modeled mortgage rate scenarios of 4%, 5% and 6%. In all three, affordability failed to return to pre-2022 levels. In Morgan Stanley’s base case, mortgage rates ease toward 5%, but mortgage payments would still account for about 21% of household income. That is well above the historical average of roughly 15%. The problem is not just mortgage rates. Morgan Stanley strategist Sarah Wolfe said about 70% of existing homeowners have mortgage rates below 5%, giving them little incentive to sell. That keeps resale inventory tight and makes the housing market harder for buyers to enter. Other pressures are also keeping prices elevated, including higher long-term rates, limited housing supply, slow permitting, restrictive land-use rules and rising insurance costs tied to climate risk. The market has already slowed sharply. Morgan Stanley said the lack of housing turnover has pushed activity to its slowest pace in roughly 40 years. First-time buyers are feeling the squeeze the most. Financing a median-priced home now costs about $2,000 per month, nearly double the monthly payment from five years ago. The broader message: even if mortgage rates fall, the old version of affordable housing may not come back quickly. $MS $BAC