Morgan Stanley warns that housing affordability is deteriorating faster than at any point in its data history — here are 2 easy ways to buck the worrisome trend
The affordability of housing across the U.S. is deteriorating at its fastest pace in history. That’s according to a recent analysis by investment bank Morgan Stanley.
The problem is that home prices are still rising while interest rates on mortgages are surging higher, which is highly unusual.
Higher mortgage rates usually push home prices down by cooling demand. Here’s why the dynamics of the housing market have become so bizarre and what potential homebuyers can do to escape the crisis.
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Housing market dynamics
Real estate isn’t a complex asset class. Prices are driven by three key factors — mortgage rates, income and inventory. The reason housing dynamics are skewed right now is that one factor has changed rapidly (mortgage rates) while the other two haven’t budged much.
The average 30-year mortgage rate in October 2021 was roughly 3%. In October 2022, the average rate surged to 6.66%— more than double. This swing in interest rates has certainly begun to cool demand in the market, with sales of existing homes down over the last seven months consecutively. In August 2022, sales dipped to their lowest level since the pandemic.
However, listings have dropped rapidly too. Many homeowners who locked in low rates for 30 years are reluctant to put their homes on the market and switch to higher rates. As of September, the number of home listings across the U.S. was 42.6% lower than the pre-pandemic average from 2017 to 2019.
Read more: Trade up while the market is down: Here are the best investing apps to pounce on ‘once-in-a-generation’ opportunities (even if you’re a beginner)
Meanwhile, the annual income of the typical American family is stagnant. That means housing has been pushed further out of reach for low-income families while high-income households are bidding on a limited inventory of homes.
A better way to buy property?
Of course, that doesn’t mean investors need to give up on real estate as an investment opportunity.
Amid hot inflation and the uncertain economy, real estate moguls are still finding ways to effectively invest their millions.
Prime commercial real estate, for example, has outperformed the S&P 500 over a 25-year period. With the help of new platforms, these kinds of opportunities are now available to retail investors. Not just the ultra rich.
With a single investment, investors can own institutional-quality properties leased by brands like CVS, Kroger and Walmart — and collect stable grocery store-anchored income on a quarterly basis.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
