You Market and the Market Impact

What's up guys? It's Graham here. And you better prepare for what's about to happen. Believe it or not, for the first time since the great financial crisis, the housing market is going through a total reset. Except this time, it could permanently change who gets to own a home and who gets locked out forever. That's because last week, Morgan Stanley warned that we're soon about to see a brand new housing market where mortgage rates stay higher, affordability fails to recover, inventory remains locked, and prices never fall enough to save the average home buyer. Meaning the crash everyone's been waiting for might not ever happen. And by the time they realize it, the opportunity to buy might

already be gone. That's why we really got to break down exactly what's happening, why the housing freeze could get significantly worse throughout the rest of the year, and then most importantly, what this actually means for you. Because if Morgan Stanley is correct, the most dangerous phase of housing prices may have already begun. And the scariest part isn't what's happening today, instead it's what's happening next. Oh, and before we start, if you appreciate me financially doom scrolling on your behalf, it would mean the world to me if you hit the like button or subscribed if you haven't done that already. Yes, I keep saying it in every video. Yes, it's annoying. Yes, it does actually help out the channel. And as a thank you for

doing that though, here's a picture of a zebra. So, thanks so much and also big thank you to SoFi for sponsoring this video, but more on that later. All right, so there's a bit of a backstory. In terms of what's happening in 2026 and what Morgan Stanley predicts for the future, we need to talk about the current state of the housing market. And that all begins with the housing freeze. See, Morgan Stanley periodically releases their home price forecasts about twice a year based on their analysis of the data trends and prices. And their latest findings were rather surprising. Like in terms of their newest research, they no longer believe

the housing market is breaking in the sense that we'll see a 2008 style crash, but rather the housing market's going to enter a brand new reset where prices just keep going higher and then just stay there. After all, as of now, the 30-year mortgage is almost at 6 and 1/2% which surprisingly is already at a 7-week low. Meanwhile, the median home price just hit $429,000 which is up another 1.3% from a year ago. And to top it all off, housing affordability is not getting any better. In fact, it's only getting worse. All thanks to what Morgan Stanley is calling the lock-in effect. Look, it's no surprise. As of right now, roughly 70% of homeowners have a mortgage rate below 5% and half have a mortgage rate below

4%. This means there's no incentive whatsoever for someone to give up their sub-4% mortgage and exchange it for one that's going to cost them 50% more when they could just stay put instead. And that's exactly what's happening. Really, until rates drop back down, the housing market is frozen. Nobody wants to move. Housing can't be built fast enough to satisfy demand. And that means that everything else on the market keeps going up in price despite being unaffordable for the vast majority of people. In fact, housing turnover is now at the slowest it's been in 40 years. And this has remained completely unchanged for 11 straight quarters. That is why we have this weird paradox where demand is weak because homes are

unaffordable, but supply is equally as weak because no one wants to give up their cheap mortgage. So, the two just kind of cancel each other out. And instead of a crash, home prices just keep going up higher where most people patiently wait for prices to drop. But unfortunately, that's not expected to happen anytime soon. All because of something that most people don't expect. And that would be the affordability trap. Believe it or not, a few days ago, Harvard just released their own warning about the recent housing price appreciation trend. And it basically just confirmed everyone's worst-case scenario. That's the fact that the housing market is completely Okay, now,

in all seriousness, even though Morgan Stanley is warning that the housing market is resetting financially, Harvard's research suggests something a lot deeper, which is that the current state of the housing market that most Americans grew up believing may have only been a one-time exception and not the rule, and that home prices were only ever designed to keep getting more expensive and more expensive. Why? Well, just keep in mind that when all of this started after World War II, you had 16 million veterans all coming back at the exact same time. And Washington was genuinely terrified. So, how do you quietly reabsorb so many people back into quiet, stable, civilian life without things getting out of control? Well, you

guessed it. The answer with this was to give them a house. The conditions, after all, were perfect. You had cheap land, cheap debt, massive government support, fast construction, rising wages, and millions of people coming home who needed jobs, families, and stability. So, the solution to this was what's known as the GI Bill. With this, veterans could buy homes with little to no money down, with low interest rate debt, and federally backed by the US government. Well, at the same time, the country was building suburbs, roads, schools, businesses, and entire communities around that new way of life to prevent the country from falling into disrepair. And it worked. As we've all

seen, millions of people bought houses, started families, and adjusted to civilian life. But unfortunately, those conditions only lasted for a few decades. And today, we have the exact opposite. Mortgage rates are higher, construction is slower, zoning is tighter, insurance is more expensive, wages have not kept up with prices, and instead of housing becoming easier to access over time, it's becoming more dependent on whether or not your family already owns those assets to begin with. That's why Harvard's warning is so important, because homeownership is starting to behave less like something people earn through income and more like something passed down through inheritance. And if that's true, Morgan Stanley's reset isn't just about rates,

prices, and inventory. It could be that our entire housing market is shifting from those who were able to work their way in to a system where you already have to help, already own, or you're forced just to fall further and further behind. So, in terms of what this means for the next few years, when prices might actually begin to come back down, and then most importantly, what you could do about this, here's what you came for. Because what they're predicting is pretty much the exact opposite of what most people expect. Although, before we go into that, even though investing could be a great way to build long-term wealth, most people don't realize that their checking and savings accounts can earn money, too.

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So all you got to do is hit the sofi.com/grambanking scan the QR code on the screen or the link is also down below in the description. Thanks so much to Sofi for sponsoring this portion and now let's get back to the video. All right, so in terms of the overall housing market, what this means for you and then what's most likely going to happen next. There is one more part of Morgan Stanley's housing report that most people don't want to hear and that would be the new normal. Look, in terms of Morgan Stanley's research their message is pretty straightforward. Stop waiting for housing to become more affordable because realistically it's just not going to happen. Now that does not mean that you should go buy anything at any

price or put yourself in a payment you can't afford but it does mean that they think you shouldn't be waiting on the sidelines for affordability to come back, for prices to drop 30% or for mortgage rates to fall back down to 3% because realistically it's just not going to happen in a very long time if not ever. That's why instead their advice is a lot more practical. They say that you should buy it when the numbers make sense for you on a monthly payment that is affordable, when you're not waiting for a crash once you've already built up an emergency fund. Or in other words, don't buy because you're afraid of missing out but don't wait forever on conditions that will probably never

happen again. It's for this reason that they have five predictions for the future with the first being number one, prices stay high. In their view, housing is basically stuck. Prices don't collapse because there's not enough supply and homeowners aren't stressed enough to sell but at the same time prices don't skyrocket either because affordability is already constrained and people could barely afford it as it is. That's why their base case is simply more of the same leading to number two, the new equilibrium. With this the housing market has reset to a world where everything costs more and people just have to get used to it. And after a while a five and a half percent mortgage

might soon start to feel cheap compared to 6.5% or a $2,500 mortgage payment might soon be cheap compared to $3,000. You get the idea. The buyers who are waiting for things to return to normal might just have to come to terms that that normal that previously existed is just never coming back. Like if rates fall, buyers rush back in, demand increases, and that supports price. But if rates rise, then buyers disappear, inventory gets constrained, and the market freezes again. So either way, it's a tough situation to be in. That is why we have number three, increased rentals. If Morgan Stanley's forecast plays out exactly as they anticipate, then rentals are really going to see an

increase in demand because if people are locked out from buying, they're going to have to live somewhere, and that means demand shifts towards apartments, build-to-rent communities, and landlords who already own the inventory on the market. And that of course results in number four, the supply problem. In this case, even if affordability improves, it doesn't fix the root problem because it's not just rates, it's also permitting, zoning, insurance, construction, labor cost, land prices. It's the fact that millions of people want homes at the same time that millions of people refuse to sell them. Even the one thing that everyone's waiting for, lower rates, could be the one thing that causes more people to

flood into the market causing prices to go even higher. And that's why we also have number five, the chain reaction. The reality is this doesn't just stop with housing prices. It also affects the entire economy because when someone buys a house, they also spend money on furniture, appliances, renovations, landscaping, moving services, insurance. And when all of that freezes, then everything else slows down. Like people spend less, they switch jobs less frequently, they don't start families, and everyone else as a whole starts falling behind. However, in fairness, not everyone agrees, and some analysts have a completely different point of view. So, in terms of what's most likely going to happen next, what they say, and

then most importantly, what you could do about all this, we need to talk about the housing reset. Overall, in terms of this next year, Zillow's latest forecast actually calls for a very slight decline in some areas, like California, Florida, and Texas, which are already price-constrained. Well, other markets on the East Coast could see prices continue going higher purely because they're starting off from a lower basis. realtor.com also somewhat agrees with this, noting that they don't see any major price correction in the future, but rather long-term, they expect the typical house would be on pace to reach a million dollars by the time millennials reach retirement age in about 25 years. And to the most extreme,

we have CoreLogic, who anticipates that year-over-year home prices are going to nationally increase by another 5.1% from all the pent-up demand. In fact, that the market activity is increasingly limited to those with enough equity or cash to ignore mortgage rates, which only widen the gap for those trying to get their foot in the door. However, in terms of the largest pool of data, the lender Fannie Mae just revealed their three most likely scenarios. And in terms of prices, they expect in a worst-case scenario that home values rise 5.3% through 2030, with a base case of 13.6% and an optimistic case of 21.6%, even though short-term, the Mortgage Bankers Association expects prices to

remain fairly flat for the foreseeable future. That's why the general consensus seems to be that we should all expect 2026 and 2027 to be a lot more of the same. We're talking sluggish sales, prices stay flat or increase 1 to 3% depending on the area, and then when interest rates do eventually come back down, we might begin to see some more activity, but that could also push prices up even higher. That's why long-term home prices are expected to regain their average 1 to 3% a year. Mortgage rates tend to settle around 5%. Although keep in mind, just because home prices are going higher in dollar terms, doesn't mean that they're going higher in terms of value. Like even if a home goes up 3% in a year, if inflation is

5%, then you actually lost 2% in terms of value. And that's something everyone should keep in mind. In fact, some economists believe that we might not see a housing crash, but we could very well see inflation eating away at the appreciation of properties to the point where eventually incomes catch up and everything balances out. Or at least that's the hope. So, in terms of what I actually think about this, and then most importantly, what you could do about all this starting today to give yourself the best chance possible of coming out ahead, here is what you came for. Overall, I tend to think that Morgan Stanley and Harvard are correct. Really from all the research that's out there, unless we see a massive economic

depression that wipes everybody out that no one sees coming, it's unlikely that housing prices are going to be crashing anytime soon. Instead, the market is just quietly resetting to a much higher and much more expensive new normal. And everyone who's waiting it out to see 2019 prices again is unfortunately probably out of luck. But, that doesn't mean that everyone should just give up. So, in terms of how to approach this going forward, number one, don't wait for a housing crash. Now, that's not to say that markets can't dip because some markets absolutely will fall in price. But, it is to say that you shouldn't be waiting for a 30% crash that'll probably never happen. Instead, if the numbers

work for you today on a home that you could comfortably afford, even if your income drops, that you intend on keeping for at least 7 to 10 years, and the numbers work out in your favor, then by all means do it. Number two, you should refinance if rates drop. Again, if you buy something today that you could genuinely afford, and rates do eventually drop, and you could refinance to save some money, great. By all means, go for it. But, don't expect this to happen, because as we've all seen, rates have stayed significantly higher for much longer than people have expected. That then leads to number three. There's absolutely no shame in renting.

Realistically, if you could rent the exact same house for much less than it would cost you to buy it, and you could invest the difference, I just tend to think that's the smarter move right now. The way I see it, renting is not throwing away money when it's costing you less than what it would cost to buy without tying up your down payment in an illiquid asset. In a lot of markets, renting just makes significantly more sense. Even if society says, "Oh, you should be buying a house." Just make sure to run your own numbers, and not the ones that worked for your uncle back in 1994. After all, for decades, we've all been told that buying a house is the single best way to build wealth long-term, that everyone

needs to do it. But, as Harvard explains, that was built and designed around a very specific moment that no longer exists anymore. And today, homeownership is not necessarily a requirement for building wealth long-term. So, whether you buy a house this year, rent for the next five, or just keep saving for the next 10 years, just make sure you don't get dragged down by the noise. Make sure to run the numbers, and no matter what, always hit the like button and subscribe if you haven't done that already. So, with that said, thank you so much for watching, and as always, if you want bonus content as members-only videos, including members financial audits where I break down your finances and roast you, feel

free to join as a channel member, and as a bonus to that, you also get early access to videos just like this. So, if that sounds good, feel free to join. We'd love to have you. Thank you so much, and until next time.