Morgan Stanley anticipates a possible 5% drop in home prices by December 2024 if 30-year fixed mortgage rates remain at current 8% levels. Elevated rates could result in flat home prices by the end of the year, and further sustained high rates could cause prices to fall 5%, even with a 5% growth in inventory, Insider reports.
Morgan Stanley also expects the yield on the 10-year U.S. Treasury to ease by mid-2024, which may bring down mortgage rates. For now, home prices continue to rise, with a 2.8% increase in median existing U.S. home prices in September.
Rising mortgage rates sidelined a good deal of buyers and sellers from the housing market through 2022 and 2023.
That's led to a dearth of available supply, which has pushed up home prices over the past year. But a prolonged period of high rates could reverse that trend.
"Longer term, if mortgage rates were to stay close to 8%, the headwinds this would represent for demand could prove to have a more negative impact on home prices," Morgan Stanley said.