The latest housing market forecast for 2024 from Goldman Sachs reveals a gloomy outlook for prospective homebuyers. With high home prices and even higher mortgage rates on the horizon, the report suggests that existing home sales are set to plummet to levels not seen since the early ’90s. Let’s dive into the details of this forecast and what it means for the housing market.
Mortgage Rates Forecast
Goldman Sachs anticipates that Mortgage rates will stay high through 2024, with a projected year-end rate of just under 7%. This unwavering high-rate environment is expected to have a profound impact on the housing market. The sustained multi-decade highs in mortgage rates will deter potential homebuyers, resulting in the lowest number of existing home sales since the early 1990s.
This lack of housing turnover is primarily attributed to the persistently elevated mortgage rates, which have recently touched the 8% mark. These high rates have discouraged current homeowners from listing their properties, creating a housing market gridlock.
For nearly 60% of mortgage borrowers, the prospect of buying a new home is daunting. They are currently enjoying rates that are four percentage points below the expected 2024 levels. Purchasing a new home would require them to prepay their existing mortgage and secure a new one at significantly higher rates.
This lock-in effect is expected to continue as mortgage rates are unlikely to drop below just under 7% by the end of 2024. The low vacancy rate in the housing market will also pose challenges for the creation of new homes.
Impact on Housing Starts
While housing starts are typically sensitive to mortgage rates, Goldman Sachs has found that this relationship weakens when homeowner vacancy rates are low. The report notes that despite the 3.5 percentage point increase in mortgage rates compared to previous years, housing starts in September were 5% above 2019 levels.
However, the lock-in effect is expected to keep demand stable, but Goldman predicts a 4% decline in housing starts in the coming year. Multifamily starts are expected to reach their lowest level since 2013. Several factors contribute to this decline, including a backlog of multifamily construction on the supply side. Recession fears and poor absorption rates are also impacting the issuance of new building permits.
Robust income growth in the upcoming year is expected to reduce demand for multifamily properties. This will put pressure on higher-income homes, which are predominantly owner-occupied properties. Despite these challenges, Goldman predicts that completions will maintain a high pace, helping clear the backlog and slightly increasing the rental vacancy rate.
Home Price Predictions 2024
As borrowing costs remain high, home price appreciation is expected to moderate in 2024. Goldman Sachs forecasts a 1.3% year-over-year increase in home prices, a significant drop from the estimated 3.4% price increase in 2023. Despite the current rate being higher, Goldman anticipates prices to turn negative by the year-end.
The overall housing market may seem challenging, but there are some who remain optimistic. Notably, “Shark Tank” star Barbara Corcoran believes that this could be the best time to buy a house. She predicts that mortgage rates will eventually drop to the 5% level. When this occurs, the pent-up demand for housing, coupled with limited supply, is expected to trigger a substantial 10%-15% surge in home prices.
While the housing market’s future remains uncertain, Goldman Sachs’ latest forecast provides crucial insights into the challenges that homebuyers may face in the coming years. The persistently high mortgage rates are expected to reshape the market dynamics, influencing both supply and demand in the housing sector.
