US Housing Tracker: Mortgage Rates Hit Highest Level in Nine Months

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US Housing Tracker: Mortgage Rates Hit Highest Level in Nine Months

IdeaM

Affordability Outlook: (Very) Mild Improvement

• We no longer expect mortgage rates to break below 6% before the end of 2027.

• With the 10-year Treasury remaining above 4.15%, our affordability metrics assume

a 30-year mortgage rate that finishes 2026 at ~6¼ before ending 2027 at ~6⅛.

• Affordability improves over the forecast horizon as income growth exceeds HPA,

but it remains near the most challenged it has been in decades.

• Exhibit 9 shows the evolution of mortgage payments as a percentage of income

based on purchase timing, highlighting the relative advantage for homeowners

who bought before 2021 (see here for more details on methodology).

Exhibit 6: We expect affordability to improve on the margin by Exhibit 7: Pace of affordability improvement moderates, with

year-end 2027 mortgage rates stuck above 6%

Mortgage Payment as % of Income YoY % Change in Affordability

28% 50%

YoY % Change Current Level

26% 40%

24% YE 2026 YE 2027

30%

22%

20%

18% 10%

16% 0%

14%

-10%

12%

-20%

10%

1990 1991 1993 1994 1996 1997 1999 2000 2002 2003 2005 2006 2008 2009 2011 2012 2014 2015 2017 2018 2020 2021 2023 2024 2026 2027 -30%

Affordability Most Recent at 5% Base Case YE 26&27 1985 1987 1988 1990 1992 1993 1995 1996 1998 2000 2001 2003 2004 2006 2007 2009 2011 2012 2014 2015 2017 2019 2020 2022 2023 2025

Source: NAR, US Census Bureau, Morgan Stanley Research forecasts Source: NAR, US Census Bureau, Morgan Stanley Research forecasts

Exhibit 8: Monthly mortgage payments on median-priced Exhibit 9: Median monthly payment as a share of household

homes has plateaued in recent months income by purchase timing

Monthly Payment

$2,500 24.2%

25.0% 22.5%

19.7%

$2,000 20.0%

15.9%

13.8%

15.0% 13.6%

$1,500

11.0%

10.0%

9.2%