Here’s what’s weighing on new home prices, according to Morgan Stanley’s Jim Egan

>> WELCOME BACK. LET'S TAKE A LOOK AT THE 30 YEAR MORTGAGE RATE, POSTING ITS BIGGEST WEEKLY GAIN IN FOUR YEARS AMID THE BOND MARKET ROUT, WITH IMPLICATIONS FOR BOTH HOME BUYERS AND SELLERS ALIKE. OUR NEXT GUEST SAYS AFFORDABILITY IS AT ITS MOST CHALLENGED LEVELS OF THE YEAR. JOINS US NOW WITH HIS OUTLOOK. LET'S BRING IN JIM EGAN, MORGAN STANLEY, U.S. HOUSING STRATEGIST, CO-HEAD OF SECURITIZED PRODUCTS STRATEGY. GREAT TO HAVE YOU HERE. HOW MEANINGFUL IS THIS THE SPIKE WE'VE SEEN IN MORTGAGE RATES? >> LOOK, THANK YOU VERY MUCH FOR HAVING ME. AS YOU SAID, INCREDIBLE INCREASE IN MORTGAGE RATES. WHEN WE THINK ABOUT WHAT THIS HAS DONE TO THE MONTHLY PAYMENT ON THE MEDIAN PRICED HOME. WE'RE UP $300 FROM LOCAL LOWS IN MORTGAGE RATES BACK IN FEBRUARY. THAT'S A 15% INCREASE. SO HEADLINE AFFORDABILITY, THE MOST CHALLENGE IT'S BEEN SINCE THE MIDDLE OF LAST YEAR AT THIS POINT. AND AS YOU MENTIONED, THAT HAS IMPLICATIONS FOR BOTH LISTING VOLUMES, SALES, HOME PRICES. IT'S GOING TO RIPPLE THROUGH THE HOUSING ECONOMY. >> SO IN LIGHT OF THAT, AND I REALIZE THAT HOUSING IS VERY LOCAL HERE AND DIFFERENT MARKETS HAVE DIFFERENT DYNAMICS AT PLAY AS WELL. BUT WHAT DOES THIS MEAN FOR HOME PRICES WHICH ARE COMING DOWN. >> YES. SO HOME PRICES, THE RATE OF GROWTH HOLISTICALLY HAS SLOWED FROM WHERE IT'S BEEN OVER THE PAST 2 TO 3 YEARS. BUT WHAT WE'RE REALLY SEEING HERE WHEN WE SAY HEADLINE AFFORDABILITY HAS DETERIORATED, THAT DOESN'T MEAN THAT ALL HOMEOWNERS AFFORDABILITY IS DETERIORATING, RIGHT? OVER 90% OF THE MORTGAGE MARKET, WHETHER WE'RE TALKING BALANCE OR COUNT, ARE FIXED RATE MORTGAGES, MOST OF THOSE 30 YEAR FIXED RATE MORTGAGES. SO LET'S JUST SAY YOU BOUGHT A HOME IN 2016, RIGHT? YOU PROBABLY REFINANCED IN 2020 OR 2021 AT RECORD LOW MORTGAGE RATES. SO YOUR MONTHLY PAYMENT TODAY IS LOWER THAN IT WAS WHEN YOU FIRST BOUGHT YOUR HOUSE, DESPITE WHAT'S HAPPENED TO MORTGAGE RATES, DESPITE WHAT'S HAPPENED TO HOME PRICES RIGHT NOW, IF WE JUST ASSUME THAT YOUR INCOME'S GROWING ALONG THE LINES OF MEDIAN HOUSEHOLD INCOME, THAT BORROWER'S MONTHLY PAYMENT IS 7 TO 8% OF THEIR MONTHLY INCOME, YOU BUYING TODAY? YOU'RE TALKING ABOUT 23 TO 25% OF YOUR MONTHLY INCOME. SO AFFORDABILITY IS DETERIORATING, NOT FOR EVERYBODY. AND IF YOU'RE THE HOMEOWNER WHO'S BENEFITING FROM THOSE LOWER RATES, THAT'S THE LOCK IN EFFECT. THAT'S SO PREVALENT, RIGHT? THEY'RE NOT INCENTIVIZED TO LIST THEIR HOMES. THE RATE AT WHICH EXISTING INVENTORY IS GROWING HAS SLOWED AGGREGATE LISTING VOLUMES 20% BELOW WHERE THEY WERE IN 2019. PAST FOUR MONTHS. WE'VE ACTUALLY SEEN THE PACE OF HOME PRICE GROWTH NATIONALLY START TO RE-ACCELERATE. WE GOT AS LOW AS ABOUT 75 BIPS A YEAR OVER YEAR GROWTH. THE PRINT WE GOT EARLIER THIS WEEK, WE'RE AT ALMOST 2%, 1.9% YEAR OVER YEAR GROWTH NOW. >> SO EVEN WITH ALL THOSE POCKETS OF SELLING AND PRICE CUTS AND AND TEXAS AND BOULDER AND DENVER, AND. >> I THINK THE PRICE CUT THING IS AN IMPORTANT THING TO MENTION THERE BECAUSE THE EXISTING HOUSING MARKET, WHICH IS ABOUT 85% OF SALES, CASE-SHILLER, IS WHAT'S ACCELERATING. THAT'S A REPEAT SALES INDEX THAT USES EXISTING TG MARKET IS IN A VERY, VERY DIFFERENT PLACE, RIGHT? WITH AFFORDABILITY CHALLENGES, SINGLE UNIT HOUSING STARTS ARE DOWN ROUGHLY 5% YEAR TO DATE. THEY'RE DOWN 20% FROM LOCAL HIGHS BACK IN ROUGHLY 2022. BUT NEW HOMES AVAILABLE FOR SALE LISTING VOLUMES THERE. THEY'RE AT THE HIGHEST LEVEL SINCE 2008 2009. I DON'T WANT TO COMPARE ANYTHING IN THE HOUSING MARKET TO 2008 2009, RIGHT? YOU'RE TALKING ABOUT EIGHT AND A HALF, NINE MONTHS OF SUPPLY THAT'S WEIGHING ON NEW HOME PRICES. IN FACT, WE SEE NEW HOME PRICES BELOW EXISTING HOME PRICES, LOOKING AT MEDIAN PRICES, REALLY FOR THE FIRST TIME IN DECADES RIGHT NOW. >> AND THAT EXPLAINS YOUR NOTE WHERE YOU INITIATED OR REINSTATED COVERAGE ON HOME BUILDERS. >> YES. SO ADAM KRAMER, EQUITY RESEARCH AT MORGAN STANLEY LAUNCHED ON HOME BUILDERS YESTERDAY MORNING AS THE HOUSING STRATEGIST, INCREDIBLY EXCITED TO HAVE HOME BUILDER COVERAGE OUT OF OUR EQUITY RESEARCH. >> DEPARTMENT, BUT WITH A LOT OF EQUAL WEIGHTS AND UNDERWEIGHTS AND ONLY ONE OVERWEIGHT IN TOTAL, I THINK RIGHT. >> TOLL IS THE OVERWEIGHT AND LOOK THAT REFLECTS THIS CHALLENGING BACKDROP. YOU MENTIONED BUY DOWNS, RIGHT? THERE'S A BACKLOG OF NEW HOMES AVAILABLE FOR SALE. BUILDERS ARE INCENTIVIZING THOSE PURCHASES. WE DO WORK ON TRYING TO IDENTIFY PERMANENT WRITEDOWNS. JAY BACOW, MY CO-HEAD OF SECURITIZED PRODUCTS RESEARCH. ON THE AGENCY SIDE, WE LOOK THROUGH MORTGAGE DATABASES. WE CAN SEE WHERE THOSE PURCHASED MORTGAGES ARE COMING IN 100, 150, 200 BASIS POINTS BELOW PREVAILING MORTGAGE RATES AT THE TIME. IF WE ASSUME FROM AN AFFORDABILITY PERSPECTIVE THAT YOU'RE TRYING TO SOLVE FOR THAT MONTHLY PAYMENT AND WE BACK INTO WHAT THAT PAYMENT WOULD IMPLY FROM THE PREVAILING MORTGAGE RATES AS OPPOSED TO WHERE THEY BOUGHT IT DOWN. YOU'RE TALKING ABOUT 10 TO 15% DIFFERENCE IN HOME PRICES. SO