The home price correction which began in the U.S. after the summer of 2022 is not quite over yet, according to Morgan Stanley, which expects prices across the country to fall by 3 percent next year, according to its latest forecast model.
After reaching a peak in June 2022, home prices in the U.S. dropped for seven months as demand faltered, with analysts announcing that the country’s market was undergoing a significant correction. But by early 2023, as inventory remained generally low across the country and demand stayed elevated, home prices started to pick up again, leading some to declare the market correction was likely over.
In May, home prices reached a new peak and were 0.7 percent higher than the previous record in June 2022, even as mortgage rates remained high. But Morgan Stanley said that the housing correction will likely continue next year.
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Back in August, Morgan Stanley—one of the world’s biggest names in investment banking—had predicted that house prices would slip by 2 percent next year. In October it revised its own expectations, saying that house prices could drop by as much as 5 percent next year.
In its latest revision of its expectations for 2024, Morgan Stanley went back to a more moderate drop, saying it expects home prices to fall by about 3 percent. Newsweek contacted Morgan Stanley by email for comment email on Monday.
“We expect affordability to improve and for sale inventory to increase. U.S. home prices should see modest declines (down 3% YoY) as the growth in inventory offsets the increased demand,” Morgan Stanley wrote, as quoted by journalist Lance Lambert on X, previously known as Twitter.
This further drop in price will help the American housing market and especially aspiring homebuyers, according to Ellen Zentner, Morgan Stanley’s chief U.S. economist.
“We expect home sales to be weak in the first half of next year, but activity should pick up in the second half and further into 2025,” Zentner said in a recent podcast released by the investment banking firm on November 17.
According to the economist, this comeback will be due primarily to an improvement in affordability, which has been a big issue for American homebuyers in the past couple of years as prices reached new heights while mortgage rates have soared since 2022 as the Federal Reserve tries to combat inflation.
An increase in inventory—which has been a big issue in the past few years, bringing up prices as homebuyers fought over a limited supply—should also ease the situation.
“We also think homebuilding activity will be stronger in the second half of next year,” Zentner said. “Home prices should see modest declines as growth in inventory offsets the increase in demand. By 2025 with lower rates existing home sales should rise more convincingly.”
A full-on crash of the housing market, like the one in 2008, is not in the picture, as Zentner said the investment manager expects “a soft landing for the U.S. economy.”
“We still maintain this view, even though strains in the economy are becoming more noticeable and recession fears remain alive,” she added.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.