Goldman Sachs forecasts dip in home prices due to high mortgage rates

Goldman Sachs has projected a decline in home prices due to escalating mortgage rates and a shortage of houses for sale. Analysts anticipate that these high rates will affect affordability and discourage homeowners from selling, leading to a drop in home sales to their lowest since the early ’90s. The bank predicts around 3.8 million annual sales by 2024.

Despite an initial increase of 4.2% in home prices in 2023, Goldman Sachs foresees a decrease of 0.8% through December, resulting in a net year-over-year increase of +3.4%. As of September, the median home price was $412,000, implying that a buyer with an 8% mortgage would need an income over $120,000 for the monthly payments.

According to Mortgage News Daily, the average rate for a 30-year fixed-rate mortgage was 7.91%. This is notably higher than the rates enjoyed by current mortgage borrowers, with nearly all having rates below the current 7%, and over 60% having rates four percentage points lower. This discrepancy is strongly discouraging current homeowners from moving, contributing to the predicted decline in home sales.

The bank also expects a winter drop in home prices, followed by a rise in March 2024. Using the Case-Shiller index, they forecast that home prices will experience a brief dip in January and February 2024, then muted growth throughout the year.

Furthermore, Goldman Sachs expects these high mortgage rates to persist, dipping to just under 7% by the end of next year. These elevated rates have led to mortgage applications hitting a 28-year low.

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