Housing is having a tough year, and if you trust the analysts at Goldman Sachs (NYSE: GS), and many on Wall Street do, it’s going to drag the U.S. economy down in the second half of 2025. For prospective buyers, sellers, and anyone hoping for a real estate rebound to prop up broader growth, the latest outlook doesn’t hold much comfort.
Goldman Sachs’ economists are direct in their assessment: residential investment will fall 8% in the last two quarters of the year compared to the same period in 2024. That’s not a minor dip. Behind the number are a handful of interlocking challenges. First and foremost, housing affordability has gotten away from many American households. Even though mortgage rates have stopped climbing, currently sticking near 6.9%, with Goldman expecting the 30-year fixed rate to average around 6.75% by the end of 2025, this hasn’t opened the door for new buyers as much as some hoped. Elevated rates keep monthly payments high, and recent slight dips in rates simply haven’t made homes meaningfully easier to afford. Add in what feels like an endless supply shortage, and neither prices nor demand show signs of major shifts.
Another headwind isn’t as widely discussed but is becoming increasingly important: immigration. Goldman Sachs’ chief economist Jan Hatzius specifically flagged reduced immigration as a real drag on new household formation. Recent policy pushes against illegal border crossings are expected to keep the pace of household growth muted for the rest of the year. Fewer new households mean less demand for both rentals and for-sale homes, which weighs on builders’ projections and on housing-related retail and services.
Multifamily construction, apartment buildings and condos, will keep running at tepid levels, at least through December. Single-family home building isn’t likely to pick up the slack, either. It’s a pivotal point, because when homebuilders pull back, it sends a ripple through everything from construction materials to appliance sales. Weakness in housing has an outsized impact on other economic sectors, amplifying the drag.
Affordability isn’t just about high sticker prices or interest rates; it’s also about incomes not keeping up. While wage growth has been a bright spot in the economy, it’s not moving fast enough to close the gap now set by high home prices and higher mortgage payments. More buyers are turning to creative solutions, including “mortgage buydowns”, paying upfront fees to press interest rates down a fraction of a point, to even get in the game. It’s a costly workaround, and one telling sign of just how tough the landscape is for buyers right now.
Of course, the future always holds room for surprise. Goldman’s own projections for home prices have bounced around plenty this year. Earlier, the firm saw prices climbing more strongly, then backed off, now expecting fairly flat or marginal positive movement at the national level. Yet, the firm’s position is clear: soft demand and restrictive affordability will cap any gains. If the labor market were to decline further, something hinted by July’s jobs report missing expectations, intensified pressure on housing wouldn’t be out of the question.
If you’re wondering what to watch next, keep an eye on mortgage rate moves. Many economists think we’ve already passed the peak for this cycle, but any further declines are expected to be slow and gradual. Supply remains the biggest wild card. Should new listings pick up or builders find a reason to ramp up activity, that could provide some relief, but as of now, both seem unlikely for the back half of 2025.
In short, if you’re hoping for housing to be the surprise engine of the U.S. economy as autumn turns to winter, Goldman Sachs has just poured a bucket of cold water on those hopes. Their view is simple: housing remains the economy’s weakest link through the end of the year.
