The housing market is experiencing a significant decline, with existing home sales reaching a 13-year low in September, the worst since the Great Recession in 2010. Zillow had previously warned of this “deep freeze” in the housing market back in the spring, and other economists believe that the current conditions resemble the housing recession of the 1980s. However, Morgan Stanley predicts further difficulties for homebuyers, with a potential 5% rise in home prices, contrary to their previous forecast of a price decrease due to high mortgage rates. In contrast, Zillow has revised its home price forecast, predicting a rise of only 2.1% between September 2023 and September 2024, down from their previous prediction of a 4.9% increase between August 2023 and August 2024.
Zillow economists attribute the downward revision in their forecast to a decrease in home prices in September and the continuous rise in mortgage rates. The housing market has lost momentum due to elevated interest rates, and homeowners who are “rate-locked” are choosing to hold onto their homes with lower monthly payments. National home prices are now expected to rise by only 3.3% in 2023, down from the 4.3% predicted last month by Zillow economists. Despite some potential buyers being priced out or limited in their affordability, the active buyers are keeping competitive pressure on the limited supply of homes for sale.
In contrast, Morgan Stanley made a more dramatic change to its 2023 outlook, reversing its expectation of falling home prices and now predicting a potential rise of up to 5%. This reversal comes as mortgage rates continue to rise, with the 30-year fixed mortgage rate reaching 8%, the highest in decades. According to Mark Fleming, chief economist at First American, it is likely that mortgage rates will remain around that level for the rest of the year, especially if the Federal Reserve raises rates again. The Fed has left the possibility of further rate hikes open, raising concerns about the housing market’s future.
