In a welcome turn of events for homeowners, experts at Goldman Sachs are updating their housing projections, indicating a positive shift in the real estate market. The latest analysis fromGoldman Sachs suggests that the trajectory of home prices will no longer descend this year but will instead experience a marginal rise. This revised outlook comes as a promising development for Americans who have been grappling with fluctuating property values and elevated mortgage rates.
Vinay Viswanathan, a fixed income strategist at Goldman Sachs, outlined the new projections in a communication to the firm’s housing team. “We are revising our home price forecasts higher, to 1.8% for full-year 2023 vs. -2.2% prior, and 3.5% in 2024 vs. 2.8% prior,” Viswanathan stated. These adjustments by Goldman Sachs imply that home prices will essentially maintain their current levels through the remainder of the year before embarking on a trajectory of moderate growth in 2024.
This optimistic shift in perspective aligns with recent market trends. Home prices, which had endured a prolonged period of decline for seven consecutive months until the start of this year, reversed course in February and have remained on an upward trajectory up until May, according to data from the Case-Shiller national price index. Craig Lazzara, Managing Director at S&P Dow Jones Indices, asserted that the data substantiates the claim that the final month of price declines occurred in January.
Viswanathan cited two pivotal factors that underpin the sustained growth in home prices. Firstly, the supply of housing remains constrained. Data from the National Association of Realtors reveals that approximately 1 million existing homes are currently available for purchase, a significant decrease from the pre-pandemic inventory of nearly 2 million homes. Simultaneously, while new housing construction is expanding due to heightened building activities, most of this new supply is still under construction. “New completions, on the other hand, remain below pre-COVID levels,” Viswanathan emphasized.
The second influential factor is the robust demand for housing, which has surpassed initial expectations. Despite an affordability index hitting record lows, prospective homebuyers have demonstrated unwavering interest, partly attributed to non-economic factors such as household formation and seasonal turnover. The Goldman Sachs analysts had initially anticipated that home prices would need to decline nationwide for buyers to enter the market, but this viewpoint has been recalibrated due to shifting demand dynamics.
Despite this positive prognosis, challenges remain in the form of persistently high mortgage rates. Freddie Mac reported that average rates for 30-year fixed mortgages have surged above 7% in recent weeks, contributing to worsened housing affordability. Goldman Sachs noted that although some buyers have adapted to these increased costs, their behavior might not be sustainable over the long term. However, the analysts anticipate a potential improvement in affordability as mortgage rates are expected to drop by 100 basis points through the end of the following year.
If the Goldman Sachs projections materialize, homeowners can find solace in the likelihood of their property investments retaining or modestly increasing in value. While these forecasts do not guarantee pre-pandemic-level returns, they do signify a hopeful trajectory toward greater property values. Nonetheless, the enduring high mortgage rates continue to cast a shadow over the dream of homeownership, particularly for many Americans who are navigating financial constraints. A decline in mortgage rates would significantly enhance accessibility to housing, but until that materializes, the potential uptick in home prices offers a glimmer of optimism for homeowners.
Source: Yahoo Finance
