According to Morgan Stanley’s Chief US Economist, Ellen Zentner, the housing market has bottomed, providing a soft landing for the economy. In her note on April 21, Zentner stated that while affordability remains a challenge, it hasn’t worsened and has even improved over the past three months. Housing inventory remains low, but it’s not getting worse. Tight lending standards are likely to prevent any significant increase in housing activity, but there is no catalyst for another leg lower either. As a result, the US GDP component related to residential investment could turn neutral during the third quarter of this year. Other indicators, such as building permits and housing starts, have displayed weakness amid elevated rates. Morgan Stanley expects negative comparisons in housing activity for the rest of the first half of this year, but they should wane in the second half. Home prices are expected to fall 4% this year, but the housing shortage has prevented a significant drop in prices. This, coupled with healthy consumer balance sheets and spending, has boosted Morgan Stanley’s outlook. The housing market bottom provides a cushion for the soft landing thesis, says Zentner.
