Morgan Stanley’s US housing strategist James Egan forecasted a mere 3% home price decline in 2023. Is he missing an extra zero?

The Fed benchmark rates have risen in 41 years — taking 30-year mortgage rates up with them. Everywhere you look, there are headlines like “US home sales drop for 7th straight month, house price growth cooling.”

Are prices bound to come crashing? It’s possible but unlikely, and here’s why.

TLDR: There are simply not enough sellers.

The inventory of single-family homes available for sale is the lowest in 40 years. Even with rising rates, there have been few forced sellers.

In 2007, exotic dancers could get six different mortgages, as Steve Carell discovered in The Big Short. Not today. Banks are much pickier about who and how many loans they give out.

What about affordability? If it’s harder to get a loan, demand should fall, and so should prices, right? Here’s what Egan had to say:

• Affordability is worst for prospective home-buyers but not for current homeowners.
• Many homeowners have already locked in lower rates over the past two years.

Now you have these homeowners holding their property, knowing they won’t be able to get a better rate. This locks a good chunk of supply off the market.

So what happens now? Unless we see an event that triggers forced selling (i.e., mass unemployment), we’re unlikely to see a major decline in home prices. Instead, investors will likely continue to see certain data (i.e., home sales) deteriorate without prices moving much.