Goldman Sachs Group Inc. has released its predictions for the US housing market, forecasting modest growth in home prices for the year 2024. According to economists at Goldman, including Jan Hatzius, home prices are expected to rise by 1.3% in December 2024 compared to the previous year. This is a significant deceleration from the 3.4% gain anticipated for 2023.
Buyers in the housing market have been grappling with higher borrowing costs as mortgage rates have remained elevated. The interest rate on a 30-year fixed mortgage sits around 8%, putting a strain on affordability for potential homeowners. Coupled with this, homeowners have shown reluctance to list their properties for sale, resulting in a limited inventory of homes on the market.
Goldman Sachs predicts that mortgage rates will remain elevated for the foreseeable future, projecting a dip just below 7% by the end of 2024. This sustained higher borrowing cost could potentially act as a headwind for the housing market, impacting the sector most sensitive to interest rates.
The limited supply of homes for sale, owing to hesitant homeowners refraining from listing their properties, will continue to hinder transactions in the housing market. Goldman Sachs anticipates a decline in sales of previously owned homes to approximately 3.8 million in 2024, which would mark the lowest level since the early 1990s.
The constrained supply is further exacerbated by the forecasted decline of nearly 4% in housing starts for 2024. This means there would be fewer new homes entering the market, adding to the existing supply shortage. The combination of hesitant homeowners and reduced housing starts is expected to restrict the availability of homes for sale, putting additional pressure on home prices.
While the worst of the housing market decline may be behind us, the challenges posed by elevated mortgage rates and limited inventory continue to shape the future trajectory of the market. These factors will likely slow down home-price growth in the US for the coming year, according to Goldman Sachs.