James Egan, an analyst from Morgan Stanley, anticipates a continued upward trend in US home prices by the end of 2023, despite the record high levels already reported by the S&P CoreLogic Case-Shiller Index. The bullish scenario suggests a 5% increase but also warns of a potential 5% drop in home prices by 2024.
Factors contributing to this projected decrease include an expected 5% growth in housing supply, unchanged high mortgage rates, and stagnant sales volumes. The rapid surge in mortgage rates from 3% to 8% over the past two years has resulted in a housing shortage. Prospective sellers have been hesitant to sell their homes, choosing instead to hold onto their cheap, fixed-rate mortgages.
This reluctance to sell, coupled with insufficient homebuilding that has led to a shortfall of up to 6 million homes, has priced out many potential buyers. Egan had earlier predicted a decrease in mortgage rates by mid-2022 on the "Odd Lots" podcast and warned of economic repercussions if this did not materialize.
He emphasized that high mortgage rates have a significant impact on housing starts and can influence the broader economy. Actions taken by the Federal Reserve to combat inflation, such as raising benchmark interest rates, have significantly contributed to the surge in mortgage rates.
Egan's future forecast indicates a complex housing market scenario, with continued price increases amid high mortgage rates on one hand, and a potential price drop due to increased supply and stagnant sales volumes on the other.
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