Morgan Stanley recently said that it expects U.S. home prices to drop by 7% between now and December 2023. That might not seem like a lot, but if its prediction comes true, it would be the second-largest decline in housing prices since the Great Depression.
That’s not going to be good for the stock market. Here’s why.
The average family has two household finance buckets: income and spending. Money comes into the income bucket from your job, freelance gig, small business and passive investments such as stocks and exchange-traded funds (ETFs).
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That income goes out to pay all of your fixed and variable expenses. The mortgage or rent check is the biggest fixed expense for most American households. Whether you rent or own, housing affordability is near or at all-time lows, leaving little for other savings-related initiatives such as your retirement plan.
“Affordability is already challenged, exposing would-be homeowners to an increasing rent environment that erodes their ability to save for a down payment. If that were to be combined with increasing unemployment, we could imagine a scenario in which existing home sales continue to outpace the GFC to the downside,” Fortune contributor Lance Lambert reported (opens in new tab) recent comments from Morgan Stanley researchers.
If you’re renting and interested in buying a house, the upside of falling prices is that you’re going to be able to find your dream home for less. The downside of falling home prices is that your carrying costs will be higher due to increased mortgage rates.
So, for the renter, the savings are fleeting.
For the mortgage-free homeowner who…
