If mortgage rates stay at 8% or higher for an indefinite period, Morgan Stanley says home prices will take a hit.
If rates, which briefly reached 8% this past week, move back up and stay there for a protracted amount of time, existing home prices could fall as much as 5%, investment bank Morgan Stanley says.
Mortgage rates at 8% or so could cause home prices to be flat by the end of the year, under Morgan Stanley's base-case forecast. And if mortgage rates just stick around this level, demand will see downside pressures increase.How much of a shock would a prolonged period of 8% mortgage produce? The monthly payment at 4% would be nearly $1,563. At 8%, the payment jumps to $2,402. That's a jump of $839 or nearly 54%.35% from 6.1 million units in 2021 to a rate of 3.96 million units in September. That's the lowest rate since 2010 as the recovery from the Great Recession was beginning. The median price of a U.S. home has been hovering around $400,000 since May.
New-home sales are off, too, but many builders are willing to buy down mortgage payments for set periods of time to help a sale go through. A typical buydown deal is subsidize the buyer two percentage points from the mortgage rate in the first year after the sale. In the second year, the subsidy drops by 1% on the loan rate.
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