US Home Price Forecast by Goldman Sachs Shows 5% Surge in 2024

Housing prices in the US defied expectations last year, showing resilience despite a surge in mortgage rates. Now, with the anticipation of interest rate cuts, Goldman Sachs Research predicts a more substantial increase in home prices than initially projected.

The latest forecast indicates a 5% surge in US home prices for the current year, up from the previous estimate of 1.9%. Goldman Sachs Research’s senior strategist, Roger Ashworth, and analyst Vinay Viswanathan delve into the factors influencing this forecast and how it varies across regions.

Projections and Factors:

Goldman Sachs Research anticipates a 3.7% rise in home prices in 2025, compared to the earlier forecast of 2.8%. This optimistic outlook is driven by several factors:

• Rising Momentum: Recent home price index releases indicate a high momentum, with an annualized rate of approximately 8% heading into the current year.
• Low Inventory: The housing market experiences low inventory, supporting prices, coupled with stable demand from factors like household formation.
• Rate-Cut Expectations: The expectation of a rate cut, with the 30-year fixed mortgage rate projected to drop to 6.3% by the end of the year.

Regional Variances:

The forecast considers the local nature of housing, categorizing markets into three main buckets:

• Expensive Markets: Areas like California and the Pacific Northwest, expected to become even more expensive.
• Affordable to Expensive: Regions like the Southeast, witnessing a shift from affordable to somewhat expensive.
• Relatively Cheap Markets: Parts of the Mid-Atlantic and the Midwest, where affordability remains and is expected to stay.

Rental Affordability:

The forecast acknowledges the impact of rental affordability on the housing equation, especially for the largest demographic in the US, the 30- to 39-year-olds. Despite higher financing costs, renting remains cheaper than buying, and only a slight improvement in mortgage affordability is expected in the near term.

Key Risks:

Roger Ashworth highlights potential risks to the outlook, including the market’s expectations on rate cuts, the impact of inflation on consumer costs, and the tightness of the labor market. A potential increase in job losses could dampen consumer confidence, delaying home purchases and putting downward pressure on prices.

Conclusion:

In conclusion, Goldman Sachs Research’s optimistic forecast for US home prices in 2024 is grounded in factors like rate-cut expectations, strong momentum, and low inventory. However, the outlook is not without risks, including uncertainties in inflation and the labor market. Homebuyers and investors should stay vigilant and consider these factors in their decision-making process.