Builders’ Mortgage Aid Lifts Home Prices, Morgan Stanley Says

Home-building companies now commonly reduce borrowers’ mortgage rates on new homes by kicking in some of the financing, but one byproduct of those efforts is that they’ve kept home prices elevated, according to a report by Morgan Stanley.

Homes tied to Ginnie Mae mortgages could be around 12% cheaper if builders weren’t helping borrowers obtain a lower mortgage rate, through what’s known as a buydown, the bank said. Meanwhile, prices of homes with Fannie Mae or Freddie Mac mortgages may be around 5% lower.

Builders have tended to offer larger buydowns on Ginnie mortgages, frequently obtained by borrowers with lower ...