Analysts Predict Home Prices Will Remain Stable This Year

Morgan Stanley’s housing analysts have updated their forecast and no longer anticipate a decline in home prices this year.

Instead, they expect prices to remain flat compared to December 2022. This change reflects the recent trend of increasing housing prices, driven by inventory challenges.

The home prices market continues to grapple with a significant shortage of available homes. Compared to pre-pandemic levels, there are currently 39% fewer homes for sale, according to Redfin.

The limited inventory has caused a decline in existing home sales, as potential buyers struggle to find suitable properties.

High mortgage rates have discouraged homeowners from selling, as they wish to retain their current low-rate mortgages. Consequently, sales in the resale market have affected.

To meet demand, homebuilders have ramped up construction efforts, resulting in a notable increase in new residential construction for both single-family and multi-family units.

With limited options in the resale market, more homebuyers are turning to newly built homes. New home sales have experienced a 4.1% increase, reaching a seasonally adjusted rate of 683,000 units in April.

This surge in new home sales has contributed to improving homebuilder sentiment, with builder confidence entering positive territory for the first time in 11 months.

Affordability and Supply Dynamics Affect on Home Prices

Morgan Stanley’s housing strategists view the current housing market as a study in the balance between affordability and supply.

While affordability is expect to remain challenging, it is not anticipate to worsen. Simultaneously, the limited supply of homes, coupled with constrained credit standards following the banking fallout, will keep the home prices market tight.

The investment bank projects that existing home sales will lag behind new home sales. Due to a large share of homeowners holding onto low mortgage rates.

They expect existing home sales to finish 2023 at a level 14% below 2022, while new home sales will experience a modest 2% gain.

Single-unit housing starts are projected to decline by 12% for the year, although this represents an improvement compare to the current year-to-date decline of 29%.