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Morgan Stanley Argues That U.S. Homeowners Are The Strong Hands This Cycle

Morgan Stanley Argues That U.S. Homeowners Are The Strong Hands This Cycle

Analysts at Morgan Stanley continue to argue that U.S. homeowners are the “strong hands” this cycle.

“Rapidly deteriorating affordability in this cycle has already caused significant decreases in housing activity, specifically existing home sales, but has left national home prices more or less unscathed. As we have detailed in numerous research reports, the biggest reason is the lock-in effect. Homeowners have not experienced the decline in affordability… They have locked in low, fixed-rate mortgages for 30 years that have simply disincentivized them from listing their homes for sale,” wrote Morgan Stanley analysts recently. ”In other words, homeowners represent strong hands in this cycle.”

In finance, the term "strong hands" refers to investors or market participants who have the financial capacity and confidence to hold onto an asset for a long period, even during periods of market volatility or downturns.

Here are 3 charts that might backup that argument.

  • 39% of U.S. homeowners are mortgage-free.

  • Among U.S. homeowners who have a mortgage, 96% have a fixed rate mortgage. Measures aimed at curbing risky lending practices—around 80% of U.S. subprime mortgages issued prior to the 2008 bubble burst were adjustable-rate mortgages—have contributed to the shift toward more stable mortgage products.

  • Among U.S. homeowners who have a mortgage, 76% have an interest rate below 5.0%.

Morgan Stanley’s argument is that because homeowners are this cycle’s “strong hands” there will be a lack of homeowner distress, and few distressed sales. The absence of distressed sales/foreclosures could be one reason national home prices remained stable despite mortgage rates doubling.

It's important to note that while many homeowners' monthly mortgage payments may be shielded from spiked interest rates, their employment situations may not be. If the U.S. economy were to slip into a recession, the rate hiking cycle could come back to pinch some recent homebuyers with a lack of savings.

We should also note that while U.S. homeowners at large might be less vulnerable to spiked interest rates, U.S. credit card borrowers with variable rates, haven’t been so lucky. Indeed, credit card stress and delinquencies continue to rise.

Later this week, ResiClub PRO members will get a deeper dive looking at inventory changes for over 800 metro areas and 3,000 counties.

 

By: Lance Lambert I ResiClub I July 11, 2024


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