Podcast Summary: Thoughts on the Market

Episode: Home Affordability Still Under Pressure
Date: December 1, 2025
Host/Guests: Jay Bacow and Jim Egan, Co-Heads of Securitized Products Research, Morgan Stanley

Overview

This episode focuses on the outlook for U.S. mortgage rates and home affordability in 2026. The hosts, Jay Bacow and Jim Egan, discuss how anticipated changes in mortgage rates might impact housing affordability, transaction volumes, and inventory. They also explore the effectiveness of proposed housing policy interventions and the prospects for further changes in the housing market.

Key Discussion Points and Insights

The Outlook for Mortgage Rates in 2026

• The Fed lowering interest rates alone does not directly cause 30-year fixed mortgage rates to drop.
• Morgan Stanley's strategy forecasts lower short-term rates, and a narrowing gap between mortgage and Treasury rates, which should help bring 30-year fixed mortgage rates down.
• Projection: The 30-year fixed mortgage rate is expected to end 2026 at around 5.75%.
  • Quote:

    “...our expectation is that the 30-year fixed rate ends 2026 around 5 and 3 quarters percent.”
    — Jay Bacow (00:50)

Affordability: Still Under Pressure, but Improving

• A reduction in mortgage rates should improve affordability, but the improvement is relative—affordability will remain challenged compared to historical norms.
• Context: The improvement from 2023 has been notable but is not unprecedented; only in crisis years (2009, 2020) did home sales respond less to improved affordability.
• Quote:

  “Affordability is still going to be under pressure, but it will have improved at a pretty healthy amount from where we were in the fourth quarter of 2023, which was multi decade levels of challenged.”
  — Jim Egan (01:24)

Impact on Home Transactions and Volumes

• Lower mortgage rates are expected to modestly increase home purchase transactions, but not drive a dramatic surge.
• Predicted growth in purchase volumes is about 3% for next year.
• The 'lock-in effect' (owners staying put due to low existing mortgage rates) still heavily influences inventory and transaction levels.
• Quote:

  “We do think that this sustained marginal improvement in affordability will help purchase volumes, but this is not what's going to get us to kind of escape velocity. We're calling for about a 3% growth in purchase volumes next year.”
  — Jim Egan (02:41)

Housing Inventory and Price Dynamics

• Inventory has increased about 30% from record lows in 2023, but remains 20% below 2019 levels—so oversupply is not a concern.
• As affordability improves and inventory rises, home price growth is expected to remain moderate.
• Forecast: 2% home price appreciation (HPA) in 2026, 3% in 2027.
• Quote:

  “That’s going to keep home price appreciation under control. We’re only calling for 2% growth in HPA next year, 3% out in 2027. But the high level thought here is that the housing market is well supported at these levels.”
  — Jim Egan (03:35)

Policy Ideas: Can More Be Done to Boost Affordability?

• Discussions about government programs (e.g., 50-year amortization mortgages) could help lower monthly payments but would greatly increase total interest paid over the life of the loan; technical and regulatory challenges remain.
• Making new mortgages portable or assumable could help, but legal and contractual limitations prevent retroactive application, and such products might come with higher rates.
• Quote:

  “A 50 year amortization schedule would likely result in a material drop in the monthly payment that the homeowner would make, which would help. However, the total interest payments for that homeowner … are probably about double over the life of the loan relative to a 30 year fixed rate mortgage.”
  — Jay Bacow (04:46)
  “We don’t think you can retroactively make mortgages portable or assumable that were not already portable or consumable… It would actually probably cause their mortgage rate to be higher, not lower.”
  — Jay Bacow (05:59)

Mortgage Demand Beyond the Fed

• With the Fed stepping back from purchasing mortgages, other sources of demand could mildly support lower mortgage rates:
  • GSEs (government-sponsored enterprises) expected to buy about a third of net market issuance.
  • Domestic banks may return as buyers.
  • These moves would only nudge rates down by 0.125–0.25 percentage points, not a dramatic shift.
• Quote:

  “We expect the GSEs to grow their portfolio next year ... We also think that domestic banks could come back to the market and they could help bring the mortgage rates lower. But these changes are going to help mortgage rates by in the context of maybe an eighth of a point to a quarter of a point at most. It’s not a panacea, unfortunately.”
  — Jay Bacow (06:56)

Notable Quotes & Memorable Moments

• “As you and I discussed previously on this podcast, the Fed cutting rates in and of itself doesn’t actually cause the 30 year fixed rate mortgage to come down.”
  — Jay Bacow (00:50)
• “The lock in effect is still playing a very big role.”
  — Jim Egan (02:24)
• “Any improvement we get in affordability from lower mortgage rates is going to be paired with increasing inventory volumes.”
  — Jim Egan (03:13)

Timestamps for Key Segments

• 00:50: Outlook for mortgage rates in 2026
• 01:24: Projected improvement in affordability
• 02:01: Impact on transactions and purchase volume
• 02:55: Inventory changes and effect on pricing
• 04:30: Administration/program options to support affordability
• 05:44: Discussion on assumability and portability of mortgages
• 06:56: Alternative sources of mortgage demand

Summary Table

| Topic | Time | Key Takeaway | |-----------------------------|----------|------------------------------------------------------------------------------| | 2026 Mortgage Rate Outlook | 00:50 | 30-year fixed rate to hit ~5.75% | | Affordability Forecast | 01:24 | Improvement from 2023, but still not robust | | Sales Volume Projections | 02:01 | 3% growth expected, “lock-in” dampens upside | | Inventory & Price Impacts | 02:55 | Inventory rising, price growth muted (2% HPA in 2026) | | Policy Options | 04:30 | 50-year amortization unlikely to broadly help; legal barriers for other ideas| | Mortgage Demand Drivers | 06:56 | GSE and bank buying could help, but only marginally lower rates |

Closing Sentiment

• Both hosts emphasized a “well supported, range bound” housing market with only modest improvements in affordability and activity expected for 2026.
• The episode closes with light banter and a nod to regular listeners to “go smash that subscribe button.” (07:54)

This comprehensive summary provides all the substantive content and insights from the episode, accessible for listeners and non-listeners alike.