{"id":155454,"date":"2023-07-21T06:00:00","date_gmt":"2023-07-21T12:00:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=155454"},"modified":"2024-02-27T14:30:54","modified_gmt":"2024-02-27T21:30:54","slug":"morningstar-says-housing-affordability-will-rebound-by-2025","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/morningstar-says-housing-affordability-will-rebound-by-2025","title":{"rendered":"Morningstar Says Housing Affordability Will Rebound by 2025\u2014Is That Possible?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4103027903\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">In a recent&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/finance.yahoo.com\/news\/morningstar-makes-bold-call-housing-194921413.html\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">economic outlook by Morningstar<\/span><\/a><span data-preserver-spaces=\"true\">, the housing market affordability is currently mimicking the peak of the housing bubble in 2006. This similarity is due to a combination of mortgage rate hikes, rising home prices, and income levels.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In light of this, Morningstar suggests that falling mortgage rates will play a vital role in improving housing affordability by 2025. Here, we\u2019ll shed some light on the various factors that are making an impact on mortgage rates and what it will mean for American real estate investors.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Why Morningstar Believes Rates Will Fall by 2025<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">It wasn\u2019t so long ago (back in&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/mortgage-rates-above-seven-percent\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">October 2022<\/span><\/a><span data-preserver-spaces=\"true\">) that we saw mortgage rates reach 7%, the highest in over two decades. This was in part due to the Federal Reserve&#8217;s attempt to slow down spending and tame inflation. However, this has been proven to be more challenging, as the U.S. economy has been quite resilient to the rapid rate hikes.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">On the bright side, Morningstar&#8217;s housing report predicts mortgage rates declining over the second half of this year. They anticipate an average rate of 6.25% for 2023. This will be followed by further decreases to 5.00% in 2024 and 4.00% in 2025.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The report mentions that the Fed will aggressively lower interest rates in the coming years. As inflation is tamed, the priority will shift to restoring economic growth, requiring lower interest rates.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">When it comes to the mortgage rate forecast, Morningstar is leaning toward the low side compared to other forecasters. The Mortgage Bankers Association and Fannie Mae expect rates at 4.9% and 5.6% by the end of 2023, respectively. Moody&#8217;s Analytics foresees a gradual decline to 6% by late 2024 and a further decrease to 5.5% by the end of 2025.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The economists at Morningstar\u2019s take: &#8220;Our long-term interest-rate projections are driven by secular trends. Factors such as aging demographics, slowing productivity growth, and increasing inequality have acted to push down real interest rates for decades, and these forces haven&#8217;t gone away.&#8221;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Furthermore, Morningstar anticipates two additional factors contributing to improved housing affordability: rising incomes and falling home prices. They predict a &#8220;mild correction&#8221; in home prices, with new and existing home prices decreasing by 6% and 4%, respectively, from 2022 through 2024. With the limited inventory of existing homes for sale, it is expected to avert a larger decline in home prices.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Meanwhile, Morningstar is taking a bearish stance on home prices. On the other hand, Zillow and CoreLogic anticipate national house prices to rise by 5.0% and 4.6%, respectively, over the next 12 months. And Moody&#8217;s Analytics expects a peak-to-trough decrease of approximately 8% for national house prices.&nbsp;<\/span><\/p>\n\n\n\n\n\n\n  <div class=\"lg:block\" x-data=\"{ ad_block_block_64ba06d264a37: popAds(1) }\">\n      <template x-for=\"ad in ad_block_block_64ba06d264a37\">\n        <a\n          :href=\"ad.linkURL\"\n          class=\"no-underline text-black\"\n          x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/morningstar-says-housing-affordability-will-rebound-by-2025', ad.sponsor, ad.title, ad.id, 'blockAdClicked', 'blockAd', '')\"\n          target=\"_blank\">\n          <div\n            class=\"py-4 border-b flex flex-col flex-nowrap text-sm border-t px-0 rounded-none\"\n            x-init=\"\n              analytics.track('blockAdLoaded', {\n                referrer: 'https:\/\/www.biggerpockets.com\/blog\/morningstar-says-housing-affordability-will-rebound-by-2025',\n                sponsor: ad.sponsor,\n                ad_title: ad.title,\n                ad_page_location: ''\n              })\n            \"\n            x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/morningstar-says-housing-affordability-will-rebound-by-2025', ad.sponsor, ad.title, ad.id, 'blockAdViewed', 'blockAd', '')\">\n            <div><span class=\"text-xs text-slate-light block bg-slate-50 p-1 inline-block rounded-md\">Sponsored<\/span><\/div>\n            <div class=\"flex items-center text-sm space-x-4\">\n                <img :src=\"ad.imageURL\" :alt=\"ad.imageAlt\" class=\"h-10 w-10 object-cover rounded-full\">\n\n                <div clas=\"text-sm\">\n                    <span class=\"font-bold block\" x-text=\"ad.sponsor\"><\/span>\n                    <span class=\"text-slate\/80\" x-text=\"ad.description\"><\/span>\n                <\/div>\n            <\/div>\n\n            <div>\n                <span class=\"font-bold\" x-text=\"ad.title\"><\/span>\n                <p class=\"mt-2 text-slate\/80\" x-text=\"ad.body\"><\/p>\n                <span class=\"mt-2 text-themeBlue block mt-2 underline\" x-text=\"ad.linkTitle\"><\/span>\n            <\/div>\n          <\/div>\n        <\/a>\n      <\/template>\n  <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What\u2019s The Probability That Rates Will Begin to Drop in 2024?&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Federal rates could start declining by next year. According to a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/advisors.vanguard.com\/insights\/article\/whythefedwillnotcutratesthisyear\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">machine-learning model created by Vanguard<\/span><\/a><span data-preserver-spaces=\"true\">, they predict that this may happen starting in mid-2024.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">What\u2019s the reason behind this? Well, inflation needs to be calmed, and the Fed is looking at other factors, like the rise in unemployment rates, in order to begin putting the brakes on interest rates.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">&#8220;Vanguard&#8217;s model uses 25 inputs in four broad categories\u2014inflation, labor market, financial conditions, and global commodities\u2014to produce probabilities for the direction of Fed moves in the near future,&#8221; explains Boyu (Daniel) Wu, a Vanguard senior investment strategist.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1480\" height=\"1160\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-21-at-12.14.13-AM.png\" alt=\"The probabilities of the federal funds rate being paused, hiked, or raised (2021-2024) - Vanguard\" class=\"wp-image-155456\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-21-at-12.14.13-AM.png 1480w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-21-at-12.14.13-AM-300x235.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-21-at-12.14.13-AM-1024x803.png 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-21-at-12.14.13-AM-768x602.png 768w\" sizes=\"auto, (max-width: 1480px) 100vw, 1480px\" \/><figcaption class=\"wp-element-caption\"><em>The probabilities of the federal funds rate being paused, hiked, or raised (2021-2024) &#8211; <a href=\"https:\/\/advisors.vanguard.com\/insights\/article\/whythefedwillnotcutratesthisyear#:~:text=A%20cut%20in%20the%20federal,market%20data%20through%20May%202023\" target=\"_blank\" rel=\"noreferrer noopener\">Vanguard<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">Although these predictions aren\u2019t guaranteed, the model has shown to be accurate 80% of the time in forecasting the moves that the Fed will make.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">According to Asawari Sathe, a Vanguard senior economist, it\u2019s unlikely that the economy will be far worse than expected and for the Fed to start lowering interest rates sooner than anticipated.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For now, this model helps to determine the likelihood of different scenarios playing out so real estate investors can be prepared for what\u2019s to come.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">A Perfect Storm is Needed to Ease Housing Affordability<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Morningstar&#8217;s optimistic outlook suggests that falling mortgage rates, coupled with rising incomes and a possible mild correction in home prices, will contribute to improved housing affordability in the future. In contrast, other forecasters are underlining the economic uncertainty and challenge of making accurate predictions. This upbeat forecast will be a welcome relief for real estate investors to hear, as there may be a silver lining within the coming years.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_53a8607de327c9628bafaaa38d46054e\" class=\"visibility-group alignwide  hidden\">\n        \n\n<div id=\"hero-block_f12e4e93e88cdec6dd27fc0031d4b22c\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find the Right Agent, Close the Best Deal<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Step #1: Use Agent Finder to match with top <em><strong>investor-friendly<\/strong><\/em> real estate agents to help you find, analyze, and close your next deal.<\/p>\n\n\n\n<div id=button-custom-event-block_f31051c2ad66b52304b09feff6b5466e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/agent\/match\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Agent Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/morningstar-says-housing-affordability-will-rebound-by-2025&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Find an Agent<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/08\/Marketplace-Blog-Blocks-Agent-v3.png\" alt=\"investor friendly real estate agent\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/morningstar-says-housing-affordability-will-rebound-by-2025&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>In a recent&nbsp;economic outlook by Morningstar, the housing market affordability is currently mimicking the peak of the housing bubble in 2006. This similarity is due to a combination of mortgage [&hellip;]<\/p>\n","protected":false},"author":613665,"featured_media":155459,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7381,7119],"tags":[],"class_list":["post-155454","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-housing-prices","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/155454","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613665"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=155454"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/155454\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/155459"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=155454"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=155454"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=155454"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}