Title: Morningstar Predicts Modest Correction in US Housing Market

Introduction:
A recent report by leading investment research firm Morningstar suggests that while the lack of available homes contributes to soaring home prices in the United States, the deterioration of housing affordability remains a significant obstacle. Mortgage rates spiked from 3% to over 6% after national house prices saw a drastic increase of 40% during the Pandemic Housing Boom, leading to a headwind for prices. Morningstar’s paper predicts that the national housing market is currently undergoing a “modest price correction,” with expectations of a decline of 4% to 6% in house prices from their peak by 2024.

The Factors Affecting Housing Prices:
According to Morningstar researchers, several factors support the continued resilience in house prices, including a rate lock-in effect, conservative lending standards over the past decade, and an undersupply of housing stock, estimated at around 2.5 million units. However, the researchers also argue that home prices reached unsustainable levels in some markets due to buyer exuberance during the pandemic and ultralow borrowing costs.

Regional Risk Score:
To assess the level of risk for home price corrections in different housing markets, Morningstar devised a “risk score” using data from the Atlanta Federal Reserve, U.S. Census Bureau, and Zillow. By considering factors such as affordability, population growth, for-sale inventory, and average days on the market, Morningstar identified the 15 housing markets at the highest level of correction risk. These include San Diego, Austin, Texas, Colorado Springs, Colo., Provo, Utah, Nashville, and Oxnard, Calif., among others.

The Vulnerable Markets:
Salt Lake City received the highest risk score, positioning it as the most at-risk metro for home price correction. According to Morningstar researchers, the city exhibited modest population growth, least affordability, nearly 50% increase in for-sale inventory, and over a 300% rise in average days on the market year over year. Meanwhile, nationally, the home price correction has been relatively minimal, with U.S. home prices in April 2023 only 2.4% below the June 2022 peak. However, Western housing markets that were overheated experienced steeper corrections, with Austin and Boise already witnessing a decline of approximately 10% in housing prices.

Relatively Low-Risk Markets:
Morningstar expects relatively affordable markets in the Northeast and Midwest to have lower risks of price corrections. The 15 major markets at the lowest level of risk are predominantly located in the eastern half of the country. These include cities like Hartford, Conn., Syracuse, N.Y., Allentown, Pa., and New Haven, Conn., among others. Morningstar researchers cite factors such as stable population growth, affordability, declining inventory, and stable average days on the market as contributors to the lower risk levels.

Looking Ahead:
Morningstar’s report suggests that although some markets have seen high single-digit to low double-digit percentage declines, relative affordability in certain regions has supported greater price resilience than anticipated. The firm believes that affordable markets in the Northeast and Midwest should continue to experience lower risks of price corrections.

In conclusion, Morningstar’s findings indicate that while the national housing market is undergoing a modest correction, the risks and impacts vary significantly across different regions. The report emphasizes the importance of factors such as affordability, population growth, and inventory levels in determining the vulnerability of housing markets to price corrections.