Morningstar’s Audacious Prediction: Restoration of Housing Market Affordability Expected by 2025 – Revealing the Blueprint

**Key Levers to Ease Housing Affordability**

Housing affordability continues to be a concern for many individuals and families. However, there are three key factors – falling mortgage rates, falling home prices, and rising incomes – that can help alleviate this issue. Among these levers, mortgage rates are expected to have the most significant impact in the short-term. Morningstar, in its recent housing report, predicts that mortgage rates will play a crucial role in easing housing affordability moving forward.

**Falling Mortgage Rates**

As of now, the average 30-year fixed mortgage rate stands at 7.14%, according to Mortgage News Daily. However, Morningstar expects this figure to trend down in the second half of the year, with an average of 6.25% projected for 2023. The forecast model also suggests that mortgage rates will further decline to 5.00% in 2024 and 4.00% in 2025. While this prediction may be considered optimistic, Morningstar argues that the Federal Reserve will aggressively cut the federal-funds rate from the current 5% to below 2% by 2025 to combat high inflation. Moreover, they predict that once the battle against inflation is won, the focus will shift to jump-starting economic growth, requiring even lower interest rates.

**Long-Term Outlook for Mortgage Rates**

Morningstar anticipates that long-term mortgage rates will remain low due to factors such as an aging population and slowed productivity growth. These elements are expected to exert downward pressure on long-term rates, including mortgage rates. According to Morningstar, regardless of short-term fluctuations, interest rates are expected to settle back down to the low levels seen before the pandemic. The firm suggests that the low-interest-rate regime will resume once the economic volatility caused by the pandemic subsides. They attribute these long-term interest-rate projections to secular trends such as aging demographics, slowing productivity growth, and increasing inequality, which have consistently pushed down real interest rates for decades.

**Other Factors Aiding Housing Affordability**

In addition to falling mortgage rates, Morningstar economists also identify rising incomes and falling home prices as factors contributing to improved housing affordability. They predict a “mild correction” in new- and existing-home prices, with estimates of a 6% and 4% decline between 2022 and 2024, respectively. However, they also note that a steeper decline in home prices may be prevented due to the limited inventory of existing homes for sale, which remains below pre-pandemic levels.

**Alternative Predictions**

While Morningstar’s projections align with their belief in a significant decrease in mortgage rates, their estimates are relatively more conservative than those of other forecasters. For instance, the Mortgage Bankers Association and Fannie Mae expect the average 30-year fixed mortgage rate to reach 4.9% and 5.6%, respectively, by the end of 2023. Moody’s Analytics anticipates a gradual decline to 6% by late 2024 and 5.5% by the end of 2025. As for home prices, Zillow and CoreLogic expect national house prices to rise by 5.0% and 4.6% respectively in the next 12 months. However, Moody’s Analytics maintains a more bearish outlook, projecting a peak-to-trough decline of approximately 8% in national house prices.


It is important to approach mortgage rate and home price forecasts with caution. Given the ongoing uncertainty in the economy, it remains challenging to accurately predict these factors. However, the current analysis from Morningstar and other forecasters provides insights into the potential future trajectory of housing affordability. By considering falling mortgage rates, falling home prices, and rising incomes, individuals can better understand the dynamics at play in the housing market and make informed decisions. For the latest updates on the housing market, stay informed by following me on Twitter at @NewsLambert or on Threads at newslambert.

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