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Morgan StanleyMorgan StanleyMorgan Stanley says U.S. housing affordability may never return to pre-2022 levels, even if mortgage rates fall to 4%, 5%, or 6%, according to market commentator Bull Theory. In the bank's base case of rates easing toward 5%, mortgage payments would still account for about 21% of household income, well above the historical average of around 15%. About 70% of existing homeowners hold mortgages with rates below 5%, discouraging selling and keeping resale inventory constrained. Higher long-term interest rates, competition from Millennials and Gen Z, restrictive land-use policies, slow permitting, and rising insurance costs linked to climate risk are also keeping affordability under pressure. Morgan Stanley added that affordability gains are likely to stall around 2027, with the lack of housing turnover pushing the market to its slowest pace in roughly 40 years.
Morgan Stanley