Why Morgan Stanley says homeowners are ‘strong hands’ in the housing market
Why Morgan Stanley says homeowners are ‘strong hands’ in the housing market
Here are three charts that show why U.S. homeowners are in a good position to hold onto their homes for the long term.
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Analysts at Morgan Stanley continue to argue that U.S. homeowners are the “strong hands” in this cycle of the housing market.
“Rapidly deteriorating affordability in this cycle has already caused significant decreases in housing activity, specifically existing home sales, but has left national home prices more or less unscathed,” wrote Morgan Stanley analysts recently. “As we have detailed in numerous research reports, the biggest reason is the lock-in effect. Homeowners have not experienced the decline in affordability… They have locked in low, fixed-rate mortgages for 30 years that have simply disincentivized them from listing their homes for sale. In other words, homeowners represent strong hands in this cycle.”
In finance, the term “strong hands” refers to investors or market participants who have the financial capacity and confidence to hold onto an asset for a long period, even during periods of market volatility or downturns.
There’s quite a bit of data that appears to back up that argument, as you can see in the charts below.
For starters, 39% of U.S. homeowners are mortgage-free.
Among U.S. homeowners who have a mortgage, 96% have a fixed-rate mortgage. Measures aimed at curbing risky lending practices have contributed to the shift toward more stable mortgage products. In contrast, around 80% of U.S. subprime mortgages issued prior to the 2008 bubble burst were adjustable-rate mortgages.
In addition, among U.S. homeowners who have a mortgage, 76% have an interest rate below 5.0%.
Morgan Stanley’s argument is that because homeowners are this cycle’s “strong hands” there will be a lack of homeowner distress and few distressed sales. The absence of distressed sales/foreclosures could be one reason national home prices have remained stable despite mortgage rates doubling.
It’s important to note that while many homeowners’ monthly mortgage payments may be shielded from spiked interest rates, their employment situations may not be. If the U.S. economy were to slip into a recession, the rate hiking cycle could come back to pinch some recent homebuyers with a lack of savings.
It’s also worth noting that while U.S. homeowners at large might be less vulnerable to spiked interest rates, U.S. credit card borrowers with variable rates, haven’t been so lucky. Indeed, credit card stress and delinquencies continue to rise.
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