According to Morgan Stanley, the US housing market is on its way to the bottom. Apparently, it should provide a soft landing for the economy.
While property prices somewhat dropped, the mortgage rates gradually increased to 6%. The real estate activity is showing no significant activity.
Overall, the housing cycle is bottoming. However, Morgan Stanley doesn’t anticipate a significant upturn.
The investment bank emphasized how a year of high mortgage rates affected the housing market negatively. With a record-breaking fall in activity and sales transactions, the rates were pretty much scraping the bottom. Besides, a little correction in property values added to the ongoing lack of interest. A few indicators of weakness in the context of mortgage rates of 6%+ include building permits and house starts.
However, Morgan Stanley’s housing strategists noted that activity is no longer dropping. It is predicted that the residential investment component of GDP could reach equilibrium in the third quarter of this year.
According to Ellen Zenter, chief economist at Morgan Stanley, supply is still close to multi-decade lows. Although affordability is still a problem, it isn’t going any worse. She added that it got much better over the past three months. Furthermore, she proposed that the housing cycle has reached its very bottom. Commodity prognosis suggests higher rates from now on.
Housing provides a buffer against other areas of the economy when other areas are faltering
The incoming data appeared consistent with the investment bank’s prediction of a 4% decrease in housing prices this year. However, the scarcity restrained the extent of the home price collapse of available properties. Therefore, along with strong consumer balance sheets, Morgan Stanley is confident in its prediction. Analysts at the bank believe the housing market is set to bottom.
Additionally, there is also no compelling reason for the housing market to take another leg lower. The paper states that stricter lending requirements resulted from the failure of a few regional banks last month. The occurrence is likely to hinder a major resurgence in housing activity.
Overall, the housing cycle is bottoming, though we do not anticipate a significant upturn. According to the GDP projections, residential investment’s direct contribution to growth will increase from -0.1% this year to 0.1% in 2024. Up from -0.5% in 2022, which was the biggest drag on growth since 2009.
The premise of the housing market bottoming shall help the larger economy avoid a hard landing scenario, Stanley suggests. As the housing market changes, so does the business cycle. That way, a harsh recession may pass by with no harm.
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