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Things have changed in the housing market. Goldman Sachs Research has revised its forecast for U.S. home prices, projecting a 5 percent increase in 2024, up from the previous estimate of 1.9 percent increase.
In December 2023, U.S. home prices rose by 3.6 percent compared to the previous year, reaching a median price of $402,045, according to Redfin.
This upward revision is fueled by several key factors. Here are three factors to explain why.
Recent data releases on the home price index have shown strong momentum, with an annualized rate of approximately 8 percent heading into the current year. This robust momentum indicates sustained demand and market strength.
The housing market continues to struggle with low inventory levels, which have historically supported higher prices. Stable demand, driven by factors like household formation, further reinforces the market’s resilience amid inventory constraints.
Areas like California and the Pacific Northwest are expected to become even more expensive, reflecting strong demand and limited inventory. Parts of the Mid-Atlantic and the Midwest are expected to remain relatively affordable, offering opportunities for buyers in these regions.
Anticipation of interest rate cuts is a significant driver behind the revised forecast. With the 30-year fixed mortgage rate expected to drop to 6.3 percent by the end of the year, improved affordability is anticipated, stimulating homebuying activity.
“If you look at the agency mortgage-backed securities market, which is the lion’s share of overall mortgages outstanding, the average mortgage rate is around 3.9%. Last time I checked, we’re now seeing mortgage rates in the mid-to-high sixes. The incentive for someone to move is quite low as a result, because if you buy the same house down the street, your mortgage payments are going to be significantly higher,” noted Roger Ashworth, Goldman Sachs managing director.
He added, “The largest demographic in the U.S. is 30- to 39-year-olds, and it’s going to continue to grow for the next several years. That’s when life events start to happen in terms of having kids, for example. Some of those people will be making the decision to buy regardless of how rental affordability compares, but it definitely still factors in. With financing costs that much higher right now, it’s still cheaper to rent than to buy. And we believe mortgage affordability will only slightly improve in the near term under our baseline housing and mortgage forecasts.”
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