The U.S. housing market’s affordability is unlikely to improve substantially in the near term, according to a recent report that advises prospective buyers not to rely on a return to pre‑2022 conditions.
Sarah Wolfe, senior economist and strategist at Morgan Stanley, noted in a report that although modest gains may occur, affordability is expected to remain constrained as the market adapts to elevated costs and tighter inventory.
Wolfe pointed out a brief February optimism when mortgage rates briefly fell below 6%, only to rise back to about 6.5% and stay above that level, dampening the housing market’s momentum before it could gain traction.
“This episode underscores how even modest rate adjustments can disproportionately affect affordability, which remains historically strained due to heightened rate sensitivity,” Wolfe wrote.
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Housing turnover has decelerated markedly in the face of rising mortgage rates, Morgan Stanley observed. (Daniel Acker/Bloomberg via Getty Images)
She explained that, when examined from 1990 to 2021, the market was less affordable than it is today roughly 15% of the time.
Consequently, even modest enhancements in affordability would still be viewed as tight relative to earlier market cycles over recent decades.
To highlight current challenges, Morgan Stanley Research estimates that a median‑priced home buyer faces a monthly payment of roughly $2,000, about double the cost from five years ago.
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The housing sector is unlikely to revert to pre‑2022 affordability levels, according to Morgan Stanley’s analysis. (Angus Mordant/Bloomberg via Getty Images)
Homeowners with lower‑rate mortgages have been hesitant to sell, fearing higher rates on new loans, which further tightens affordability for prospective buyers.
“Rising financing costs are also freezing sellers. Roughly 70% of current homeowners hold rates below 5%, and half below 4%, making it expensive to move and secure a new mortgage at today’s higher rates. This dynamic has driven turnover to its lowest level in about 40 years,” Wolfe said.
Because existing‑home turnover remains limited, new construction is assuming a larger share of supply. The report observes that price appreciation is decelerating in certain markets and that scarcity persists, but supply growth is insufficient to “meaningfully lower the barrier to entry.”
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New home construction is bolstering housing market supply, yet its pace is inadequate to substantially improve affordability. (David Paul Morris/Bloomberg via Getty Images)
Affordability pressures have also reshaped first‑time buyer profiles. Although the average age stays near 36, the mean credit score has risen to 734, up from 718 in 2019.
First‑time buyers are also shouldering larger mortgage balances, averaging $334,000 in 2024—up from $240,000 in 2019 and $195,000 in 2014. This growth exceeds inflation by more than twofold, and many are moving to more affordable ZIP codes to purchase their initial home.
Wolfe added that modest affordability improvements may emerge if rates stabilize and price growth slows. The firm projects rates could ease to around 5%, reducing mortgage payments to roughly 21% of household income over the next decade—still above the 15% observed after the 2007‑2009 financial crisis.
“Across all scenarios modeled by Morgan Stanley Wealth Management—whether rates settle near 4%, 5%, or 6%—affordability is unlikely to revert to previous peaks, and the probability of rates landing closer to 6% is increasing,” Wolfe wrote. “In short, the market is not broken but is adjusting to a more constrained equilibrium.”
Wolfe further noted that “waiting for prices to fall back to the affordability levels of the past two decades may be a misguided strategy; instead, prospective buyers should purchase when it aligns with their financial circumstances and the right opportunity arises.”
