Odd Lots This Is What 7% Mortgages Will Do To the Housing Market
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Oct 10, 2022 
Jim Egan, Morgan Stanley's US housing strategist, sheds light on the current state of the housing market amid soaring mortgage rates. He discusses the dramatic collapse in mortgage affordability and the sticker shock new buyers face today. Egan argues that while high rates will deter many, a significant influx of homes for sale is unlikely, as most homeowners are not compelled to sell. Instead, the housing market is set for a shift in activity rather than a price crash, with a focus on the resilience of fixed-rate mortgages.
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Unprecedented Affordability Decline
- Housing affordability is deteriorating at an unprecedented rate, worse than the 2008 financial crisis.
- The monthly mortgage payment on the median-priced home is up over 50% year over year.
Fixed-Rate Mortgage Impact
- Unlike the 2008 crisis, most mortgages today are fixed-rate, locking in lower payments for existing homeowners.
- This time, affordability issues primarily affect first-time homebuyers, not current homeowners.
The Lock-In Effect
- Homeowners with low fixed rates are less likely to sell, creating a lock-in effect.
- This reduces housing inventory and prevents prices from falling as drastically as in the past.