Podcast Summary: Thoughts on the Market

Episode: When Will the U.S. Housing Market Reactivate?
Date: September 25, 2025
Host: James Egan (Morgan Stanley US Housing Strategist)
Guest: Ellen Zentner (Chief Economic Strategist, Morgan Stanley Wealth Management)

Overview of the Episode’s Main Theme

This episode tackles the current “stuck” state of the U.S. housing market, analyzing the lingering effects of high mortgage rates, constricted supply, and evolving demographic trends. James Egan and Ellen Zentner discuss the factors impeding market mobility, explore the interplay between housing and the broader economy, and highlight potential investment opportunities for the coming decade. The conversation provides data, expert analysis, and a measured look at whether lower rates or policy changes will truly unlock the market.

Key Discussion Points and Insights

1. The Housing Market: “Stuck” or Just Paused?

• FED Rate Cuts and Mortgage Rates
  • Despite the Federal Reserve’s recent and anticipated rate cuts (six 25bp cuts expected through mid-2026), mortgage rates remain stubbornly high due to factors beyond Fed control.
  • “Mortgage rates, they're not tied to Fed funds. So even if we do get six 25bp 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.” (James Egan, 00:32)
• Market Activity & Economic Implications
  • There’s minimal “churn”—meaning low transaction volume—stemming mainly from a lack of sellers, even as underlying demand persists.
  • “The economy does well when things are moving and shaking because there's a lot of home related spending … that helps boost consumer spending.” (Ellen Zentner, 01:20)
  • Housing acts as a business-cycle bellwether given its interest rate sensitivity.

2. Demographics and Long-Term Housing Needs

• Demand Drivers
  • Millennials and Gen Z are aging into homebuying years, fueling robust long-term demand.
  • “We're going to need about 18 million units to meet all of that demand through 2030.” (Ellen Zentner, 02:50)
• Supply and Affordability Constraints
  • Attaining this supply is challenged by affordability barriers and constrained construction.
  • Long-term opportunities include single-family rentals, modular housing, and multifamily solutions.

3. Shifts in Ownership, Rentership, and Wealth Creation

• Rise of Renting
  • There’s a significant shift from ownership to single-family rentership—the fastest-growing household type in 15 years.
  • “Single family rentership becomes another outlet and will continue to be an important pillar for the US Housing market on a go forward basis.” (James Egan, 06:59)
• Economic Multipliers
  • Renting versus owning impacts spending and intergenerational wealth.
  • Homeownership remains critical: “The average household has four times the wealth in their home than they do in the stock market.” (Ellen Zentner, 04:31)
  • The national homeownership rate is now at 65%, its lowest since 1995 (excluding the immediate aftermath of the financial crisis).

4. Internal Migration Patterns

• Movement for Affordability
  • Americans are relocating from high-cost to lower-cost metros, impacting regional economies and tax bases.
  • Ownership rates affect municipal revenues and regional housing supply/demand imbalances.

5. Persistently High Mortgage Rates

• Why Mortgage Rates Stay High
  • Mortgage rates are disconnected from Fed fund moves, aligning more closely with bond markets and investor demand.
  • Current rates (6.25%+) remain well above the average outstanding mortgage (~4.25%).
  • “The market's 200 basis points out of the money.” (James Egan, 08:27)
• Affordability Thresholds and ‘Fence Sitters’
  • A sustainable uptick in activity requires about a 10% improvement in affordability, likely at ~5.5% mortgage rates.
  • Lower rates will bring in some buyers ("fence sitters") and support refinancing, but a wholesale reactivation isn’t imminent.
  • “What we think you really need to see a sustainable growth in housing activity is about a 10% improvement in affordability.” (James Egan, 08:48)

6. Policy Interventions and Limitations

• Potential Avenues
  • GSE (government-sponsored enterprise) reform, first-time homebuyer tax credits, supply-side programs.
  • Past temporary tax credits (e.g., post-2008) offered only a short-term boost, pulling demand forward without lasting price support.
  • “Could argue that it maybe pulled some demand forward and so you saw a lot of it concentrated and then the absence of that demand afterwards.” (James Egan, 12:59)
  • Local, state, and federal coordination is required; “the devil’s in the details.”

7. Investment Opportunities for the Next Decade

• Key Sectors Highlighted
  • Single-family rental real estate, REITs exposed to rental markets, senior and affordable housing, homebuilders, materials companies, sustainable (“green”) construction, and proptech/fintech.
  • “Senior and affordable housing providers, home construction and materials companies. What about building more sustainable homes … and financial technology firms that offer flexible financing solutions. So these are some of the things that we think could be in play as we think about housing over the long term.” (Ellen Zentner, 13:42)

Notable Quotes & Memorable Moments

• On Housing’s Central Role:

  • “As goes housing, so goes the business cycle.” (Ellen Zentner, 01:37)

• On Demographic Pressure:

  • “We always like to say demographics makes the world go round … we're going to need about 18 million units to meet all of that demand through 2030.” (Ellen Zentner, 02:39–02:52)

• On the ‘Lock-In’ Effect:

  • “I have a 2.7% 30 year mortgage and I've told my husband I'm gonna die in this apartment. I'm not moving anywhere. So I'm part of the problem.” (Ellen Zentner, 10:09)

• On Shortcomings of Policy Fixes:

  • “The effects [of tax credits] were temporary; sales and prices wouldn't hit their post housing crisis lows until after those programs expired.” (James Egan, 12:47)

• Final Investor Takeaway:

  • “Housing isn't just about where we live, it's about where the economy is headed.” (James Egan, 14:27)

Timestamps for Important Segments

• 00:00–00:32 Introduction and Fed rate cut context
• 01:15–02:08 The importance of churn and impact on economy
• 02:35–03:48 Demographics and unit demand through 2030
• 04:07–04:57 Shift to rentership and impacts on wealth
• 05:14–06:30 Internal migration and macroeconomic consequences
• 06:30–07:48 Rise of single-family rentals, low credit availability
• 07:48–09:27 Mortgage rate mechanics and affordability hurdles
• 09:27–10:54 Refinancing trends, psychological lock-in, generational perspectives
• 11:38–12:59 Policy levers: GSE reform, tax credits, supply programs
• 13:36–14:20 Sector investment opportunities
• 14:27–14:32 Key closing thought for investors

Conclusion

This episode delivers a nuanced and data-driven read on the U.S. housing market’s inertia, rooted in rate-disciplined supply, demographic pressure, and the enduring drive for both homeownership and adaptation (rentals, migration). Policy tweaks and near-term rate cuts alone are unlikely to unstick the sector, but emerging opportunities for investors abound in rental housing, innovative construction, and related financial technologies. The underlying message: housing trends will continue to steer the broader U.S. economic trajectory for years to come.