Want more housing market stories from Lance LambertsResiClubin your inbox?Subscribeto theResiClubnewsletter.Morgan Stanley forecasts that nationally aggregated home prices are likely to fall 2% this year.This is a particularly bearish view compared to other forecasters. Among the 26 firms tracked by ResiClub, the average U.S. home price forecast for 2025 is a 2.7% increase.We believe the housing market, and home prices in particular, are on a healthy foundation, Jim Egan, Morgan Stanleys head of housing market research, told ResiClub. We by no means view this as a correction in [national] home pricesjust the dynamic introduced by increasing inventories, allowing home price appreciation to dip below 0%.Morgan Stanleys home price appreciation forecast is based on an analysis of several factors, including demand for shelter, housing supply (both existing homes for sale and new construction), affordability, and the availability and quality of mortgage credit. The firms bearish 2025 outlook is driven by the U.S. housing markets intertwined affordability and supply dynamics.Although total active listings are among the lowest in decades, supply is increasing. According to Morgan Stanleys December housing tracker, for-sale housing inventory has risen 15% year-over-year.It is this inventory growth that we believe has contributed to the slowdown in home price appreciation over the past several months, Egan says. We think that continued growth in for-sale inventory in 2025 will lead to further slowing in home price appreciation, eventually bringing it below 0% by the end of the year, leading to our -2% forecast.After this years slowdown in home price appreciation, Morgan Stanley predicts national home price growth will re-accelerate to +3% in 2026.Meanwhile, affordability has improved from Q4 2023, even when the recent increase in mortgage rates since mid-September is factored in, Egan says.However, it is important to note that housing affordability remains more challenging than it has been for most of the past 40 years. This marginal improvement in affordability has yet to increase home sales volumes significantly, with supply reacting faster than demand to the broader decrease in mortgage rates. However, Egan does expect sales volumes to climb in 2025.We think we are seeing green shoots in the form of year-over-year increases in both pending home sales and mortgage applications for purchase over the past few monthsthe first time either has shown year-over-year growth since 2021, he says. That being said, the backdrop of challenged affordability and limited inventory should keep home sales growth modest.In addition to the official -2% home price appreciation forecast, the investment bank also accounts for unforeseen macro developments providing bull case and bear case forecasts.Morgan Stanleys housing researchers suggest that if demand responds stronger than anticipated to lower mortgage rates, home prices could continue to grow in 2025. This would support the firms bull case, which predicts national home price appreciation at +5%.On the flip side, if supply increases faster than expected, with strained affordability keeping buyers on the sidelines, this would contribute to Morgan Stanleys bear case, which calls for a -5% decline in home prices in 2025.After this years home price appreciation slowdown, Morgan Stanley predicts national home price growth to re-accelerate to +3% in 2026, Egan told ResiClub.