Episode Details

Our Co-Head of Securitized Products Research James Egan joins our Chief Economic Strategist Ellen Zentner to discuss the recent challenges facing the U.S. housing market, and the path forward for home buyers and investors. 

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James Egan: Welcome to Thoughts on the Market. I'm James Egan, U.S. Housing Strategist and Co-Head of Securitized Products Research for Morgan Stanley. 

Ellen Zentner: And I'm Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing at Morgan Stanley Wealth Management. 

James Egan: And today we dive into a topic that touches nearly every American household, quite literally. The future of the U.S. housing market. 

It's Thursday, September 25th at 10am in New York. 

So, Ellen, this conversation couldn't be timelier. Last week, the Fed cut interest rates by 25 basis points, and our chief U.S. Economist, Mike Gapen expects three more consecutive 25 basis point cuts through January of next year. And that's going to be followed by two more 25 basis point cuts in April and July. 

But mortgage rates, they're not tied to fed funds. So even if we do get 6.25 bps cuts by the end of 2026, that in and of itself we don't think is going to be sufficient to bring down mortgage rates, though other factors could get us there.

Taking all that into account, the U.S. housing market appears to be a little stuck. The big question on investors' minds is – what's next for housing and what does that mean for the broader economy? 

Ellen Zentner: Well, I don't like the word stuck. There's no churn in the housing market. We want to see things moving and shaking. We want to see sellers out there. We want to see buyers out there. And we've got a lot of buyers – or would be buyers, right? But not a lot of sellers.  And, you know, the economy does well when things are moving and shaking because there's a lot of home related spending that goes on when we're selling and buying homes. And so that helps boost consumer spending. 

Housing is also a really interest rate sensitive sector, so you know, I like to say as goes housing, so goes the business cycle. And so, you don't want to think that housing is sort of on the downhill slide or  heading toward a downturn [be]cause it would mean that the entire economy is headed toward a downturn. 

So, we want to see housing improve here. We want to see it thaw out. I don't like, again, the word stuck, you know. I want to see some more churn. 

James Egan: As do we, and one of the reasons that I wanted to talk to you today is that you are observing all of these pressures on the U.S. housing market from your perspective in wealth management. And that means your job is to advise retail clients who sometimes can have a longer investment time horizon. 

So, Ellen, when you look at the next decade, how do you estimate the need for new housing units in the United States and what happens if we fall short of these estimated targets? 

Ellen Zentner: Yeah, so we always like to say demographics makes the world go round and especially it makes the housing market go round. And we know that if you just look at demographic drivers in the U.S. Of those young millennials and Gen Z that are aging into their first time home buying years – whether they're able to immediately or at some point purchase a home – they will want to buy homes. And if they can't afford the homes, then they will want to maybe rent those single-family homes. 

But either way, if you're just looking at the sheer need for housing in any way, shape, or form that it comes, we're going to need about 18 million units to me