One thing has been true about home prices since the pandemic began: They just keep going up across the country. In 2023, this has persisted even as mortgage rates more than doubled from the 3% range to slightly above 8%—and as buying activity collapsed. In July, Fortune’s then-housing editor (and current ResiClub cofounder) Lance Lambert summed up Goldman Sachs’ perspective on the market: Four more years of gridlock? And that was even before the “higher for longer” rates scenario started to sink in.
A quarter later, Goldman is back with an updated forecast, and it doesn’t see an ounce of relief in sight for buyers, although it says the “sharpest declines in housing activity and prices are now long behind us.” But higher for longer rates, higher home prices, and depressed activity? Check, check, and check.
Next year, for one, Goldman Sachs sees “sustained higher mortgage rates” having their most pronounced impact on housing turnover, according to its latest 2024 housing outlook released on Sunday. Nearly all borrowers have mortgage rates below the current market rate, which means they have almost no reason to move—that further tightens supply in an already underbuilt housing market. In other words, we’ve seen the lock-in effect at 7% rates nearly all year; now it’s time to see it at 8% mortgage rates.
On the outlook for mortgage rates staying at their over two-decade high of 8%, stategists including chief economist Jan Hatzius “expect mortgage rates to remain elevated for the foreseeable future, dipping to just under 7% by the end of next year.”
Considering supply, demand, affordability, and home prices, Goldman Sachs’ housing model suggests that home prices, as measured by the Case-Shiller home price index, will fall 0.8% through December of this year. However, since home prices have risen 4.2% this year, by the bank’s estimate, that’ll bring us to a 3.4% year-over-year increase. And although Goldman forecasts home prices will rise in 2024 again, it will be a much more modest increase of 1.3% “as supply remains tight but high rates weigh on affordability.” This is a downward revision from July, when Goldman foresaw a 1.7% home-price increase in 2024.
Add it all up, and it's a recipe for not a lot of homebuying activity.
The lowest sales figures in 3 decades
That takes us to another prediction: that higher for longer mortgage rates, and their resulting lock-in effect, will push existing home sales to fall to their lowest level since the early 1990s. In September, existing-home sales dropped 15% on a year-over-year basis, the lowest figure since 2010, according to the National Association of Realtors.
Additionally, Goldman touches on the housing market’s limited supply, which has kept homebuilders resilient to higher interest rates. In September, housing starts were 5% higher than pre-pandemic levels. That won’t last much longer. The bank expects housing starts to decline by 4% in 2024 because of fewer multifamily starts, totaling less than 350,000, which would be the lowest level of multifamily starts since 2013.
The backlog of multifamily units under construction has grown 56% since 2020, and the pipeline of new developments has begun to narrow. Single-family starts will be largely unchanged, according to Goldman Sachs. However, fewer multifamily starts won’t slow the normalization of rent inflation, it said, because even if multifamily starts are set to decline, completions won’t—at least not immediately. The bank also expects new-lease rent growth will rise 3% each year, for the next couple of years. So, despite an increase in rental vacancies, it expects demand to hold up. And, that’ll also shrink the gap between continuing and new leases, used to measure shelter inflation.
Recently, Morgan Stanley reversed its course, forecasting a rise in home prices of up to 5% this year, having previously expected home prices to fall in both 2023 and 2024, in separate forecasts. Additionally, in its recent note, Morgan Stanley said that a 5% growth in inventory next year alongside a zero increase in sales would yield a 5% fall in home prices in 2024.
Several home price forecasts for next year hover between more than a 1% increase to less than 4% increase—that is, except for the AEI Housing Center. The public policy think tank expects a 6% increase in home prices for 2023, followed by a 7% jump in 2024—an upward revision compared to that of Morgan Stanley and Goldman Sachs.
