A new analysis conducted by Morgan Stanley comes to the sobering conclusion that the US housing market is not experiencing a temporary downturn. Rather, it is caught in an equilibrium of higher costs and lower turnover, which will not return to the cheap-financing conditions of the 2010s. This fundamental shift has far-reaching implications for homeowners, buyers, and the entire real estate industry.
The study highlights that the era of 'cheap money' in the American real estate market has ended. A key factor in this is the significantly increased mortgage interest rates, which in recent years have reached a level that considerably impairs affordability. Morgan Stanley assumes that these interest rate levels are structural in nature and should not be understood as short-term adjustments that will soon fall again.
Impact on Homeownership and Transaction Volume
The consequences of this development are twofold. On the one hand, the acquisition of homeownership has become significantly more expensive for new buyers, making access to homeownership difficult for many. On the other hand, the incentive for existing homeowners to sell their properties is reduced. Many owners secured their mortgages under significantly lower interest rate conditions. A sale would mean that they would have to accept a much higher interest rate for financing when buying a new property, even if their current home has increased in value.
This so-called 'lock-in' effect leads to a reduced supply in the market. Fewer properties available for sale, combined with continued demand driven by population growth and household formation, stabilises prices at a high level – but at the same time prevents a substantial revival of transaction volumes. Morgan Stanley sees this as a permanent structural change rather than a cyclical correction.
Long-term Perspectives and Need for Adjustment
The bank points out that market participants and policymakers must acknowledge the reality of a new, more expensive housing environment. The expectation of a return to past conditions is unrealistic. Instead, strategies must focus on adaptive measures that enable sustainable housing provision under changed financing conditions.
- —Increase in mortgage interest rates as a primary factor.
- —Reduced incentive for existing owners to sell.
- —Stably high prices with lower transaction volume.
- —Necessity of new approaches for affordability and housing construction.
Morgan Stanley's analysts emphasise that this is not a temporary phase, but a long-term condition that requires investment in new housing models and, where appropriate, political rethinking to meet the housing needs of the US population in this new economic context. The real estate industry must prepare for an era in which capital is more expensive and the decision to purchase a home is weighed even more carefully.
