Mortgage Rates Fall Again, But It's Not Enough For Morgan Stanley

Zinger Key Points
  • The average 30-year fixed mortgage rate fell for a third week in a row, from 6.67% to 6.49%.
  • Even still, the number of mortgage loan applications dropped by 0.8% from the week before and Morgan Stanley advises waiting longer.
Mortgage Rates Fall Again, But It's Not Enough For Morgan Stanley

According to data issued on Tuesday by Mortgage News Daily, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell for a third week in a row, from 6.67% to 6.49%.

While this is good news for potential buyers holding off on making a purchase, analysts at Morgan Stanley advise waiting even longer — and it seems like consumers know this.

What Happened: A month ago mortgage rates were above 7%, but they have subsequently dropped by more than half a percentage point.

Even still, the number of mortgage loan applications dropped by 0.8% from the week before as borrowers waited for the so-called home price correction that experts such as Morgan Stanley were forecasting.

Read Also: Here's Where Morgan Stanley Bets The Housing Market Goes In 2023

“In our view, this [upcoming] housing recession will be different than the 2008-12 collapse,” Morgan Stanley's Ethan Harris wrote in a note to investors Tuesday. “Unfortunately, the early evidence suggests that a major price correction is likely in many markets.”

The national price index was still increasing 10.7% in September, according to S&P Corelogic's Tuesday house price report, which is generally regarded as the best such indicator.

However, national prices have been falling every month for the last three months in a row, dropping a total of 2.2%.

Morgan Stanley pointed out the extent of the decline is even more startling; prices have declined for two, three or four straight months in all 20 large cities.

“This is concerning,” the investment bank wrote. “Outside of the sub-prime mortgage crisis, home prices tend to be a sticky, lagging indicator. The drops are happening with a still robust labor market. Prices could fall even faster once a recession sets in.”

Why This Matters: A double-digit correction is not a major concern for homeowners who have owned their homes for a long period of time.

For those who already own a home, the spike in housing price inflation was a huge boon. The gains would only be forfeited for a year or two. The reversal, though, can be very painful for recent purchasers.

Read Also: Wait, What? Wharton Professor Jeremy Siegel Says The Housing Market Is Going To Do This

As a hedge against a potential slide in home value, a homeowner (or any investor) can purchase shares in rental properties for as little as $100 to earn passive income and build wealth over time: Here’s how you can get involved in earning income in the housing market.

Additionally, it doesn't exactly boost customer confidence when a household's most valuable asset becomes less liquid and depreciates, thus it would be advantageous for a homeowner to generate additional income from a property they do not own.

To read about the latest developments in the industry, check out Benzinga's real estate home page.

Photo: Ground Picture via Shutterstock

Posted In: Arrived HomesEthan HarrisHousingMorgan StanleyAnalyst ColorNewsCommoditiesMarketsReal Estate