Still, while the lock-in effect should keep demand steady, Goldman predicts a 4% slide in housing starts next year, with multifamily starts expected to hit the lowest level since 2013. Rising mortgage rates could also cut into consumer spending in Norway, Australia and New Zealand, as those countries have substantial mortgage debt and an elevated share of mortgages that reset within a year. Britain may be less insulated from a spike in rates, according to Goldman Sachs Research. While the share of floating-rate mortgages is much smaller than a decade ago, the interest rate for nearly all U.K. Mortgages reset within five years of origination, and around 40% of them are expected to have rate increases by July 2023, according to a Bank of England estimate. That last figure illustrates that even by 2027, the Wall Street firm doesn’t expect existing home sales to reach either the pre-pandemic level of 5.34 million or the 2021 boom of 6.12 million, as ResiClub pointed out in a note Tuesday.
US home prices are forecast to climb
The NAR report states that 70% of American households owned a pet in 2022, up from 56% in 1988. When this happens, the lack of housing supply and a fresh increase in demand will send prices surging 10%-15%, she predicted. Last week, “Shark Tank” star Barbara Corcoran noted that this may be the best time to buy a house, as mortgages will eventually drop to the 5% level. In March 2023, Bloomberg Intelligence published its Pet Economy Report, which forecasts that the global pet industry is expected to increase in size from $320 billion to $500 billion by 2030 as the worldwide pet population continues to grow.
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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. Hopes for a 2024 housing market rebound should be kept in check, as sustained multi-decade highs in mortgage rates will push existing home sales to lows not seen since the early 1990s, Goldman Sachs said in a report on Monday. This Goldman Sachs forecast is, of course, terrible news for would-be homebuyers who thought the COVID-19 housing market was bound to pop soon and erase some gains.
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However, when these opposing forces are considered collectively, the forecast from Goldman Sachs projects that the housing market will experience a gridlock, with only very low levels of house price growth through 2026. Furthermore, the forecast anticipates minimal relief for mortgage rates, projecting that the 10-year Treasury yield will average 3.75% between 2024 and 2026. Additionally, Goldman touches on the housing market’s limited supply, which has kept homebuilders resilient to higher interest rates. 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. Fast forward to 2023, and the mortgage rate shock has clearly stopped the overheating—national house prices in April as tracked by Case-Shiller remain 2.4% below the June 2022 peak—however, we haven’t seen a huge give-up. The vast majority of pandemic house price gains remain, and that’s true even in Western markets that were hit hard by last year’s housing correction.
- “We expect to see stronger momentum in pet ownership amid a relatively weaker birth rate outlook and higher incremental household pet penetration from the younger generation,” Goldman Sachs said in its report.
- “Predicting how mortgage rates will move is a nearly impossible task, but recent inflation news gives the impression that rates are likely to hold fairly steady as well in the coming months,” Zillow researchers said.
- Furthermore, the forecast anticipates minimal relief for mortgage rates, projecting that the 10-year Treasury yield will average 3.75% between 2024 and 2026.
- People having more pets than babies shouldn’t be surprising considering how China is presently grappling with a demographic crisis.
- The Goldman Sachs Housing Affordability Index touched a record low in late 2023, and is expected to improve only gradually over the next three years.
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Affordability issues could explain why rent growth has been stronger than home price growth over the past 12 months, based on Zillow estimates. The payment gap between new mortgages and new rental leases has grown considerably across geographies (largely a function of mortgage rates), potentially encouraging first-time homebuyers to hold off purchasing a home. As interest rates have risen, 30-year-mortgage rates are now expected to be 7.6% at the end of 2023, up from the previous estimate of 7.1%, Goldman Sachs Research analysts Roger Ashworth and Vinay Viswanathan write in the team’s report. Similarly, the forecast for rates at the end of 2024 now stands at 7.1%, up from 6.8% previously. This upward revision by Goldman Sachs, coupled with improved mortgage purchase application figures for January, is why Fortune once again tracked down the latest housing forecasts from 29 of the nation’s leading housing researchers.
“An unfriendly byproduct of our forecasts for resilient home prices and limited rates relief is enduringly poor housing affordability,” Ashworth and Viswanathan write. The Goldman Sachs Housing Affordability Index touched a record low in late 2023, and is expected to improve only gradually over the next three years. Housing prices in the US were surprisingly resilient last year in the face of a jump in mortgage rates.
People having more pets than babies shouldn’t be surprising considering how China is presently grappling with a demographic crisis. “Our analysis suggests that housing poses downside risk to GDP across all G-10 economies,” Struyven and Zhestkova wrote. “I think in the second half of the year is more realistic than the first half, but again, it’s going to depend on the data,” he said, referring to the potential for rate cuts. Still, completions will keep up with the multi-decade high pace, Goldman said, helping clear the backlog and add a small increase to the rental vacancy rate. “Increased pet nutrition is leading to longer pet lives around the world,” Ann-Hunter van Kirk, a senior biopharmaceutical analyst at Bloomberg Intelligence, said in a statement about the report.
Economists at Goldman Sachs Research say there are risks that housing markets could decline more than their model suggests. That’s in part because the outlook across the G-10 has deteriorated sharply, based on signals from home price momentum and housing affordability. There’s also evidence that prices in Canada and New Zealand tend to revert to their longer-term averages (mean reversion).
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. When it comes to existing homes, the inventory available for sale is historically low. And while new home inventory continues to rise statistically, most of this new inventory is still under construction. Meanwhile, robust income growth next year should ease demand on multifamily properties, putting pressure on higher-income homes. This lock-in effect should continue as mortgages likely won’t fall lower than just under 7% by the end of 2024, the report said. The low vacancy rate will weigh heavily on the gross housing inventory, adding pressure on the creation of new homes, instead.
Over the last two years, low inventory, rising home prices, and skyrocketing mortgage rates have made it difficult for Americans to enter the housing market, either as buyers or sellers. Conditions have made many homeowners reluctant to move, which has left house hunters with fewer options to choose from. 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.
Over the next four years, Goldman expects that to inch higher to 1.335 million in 2024, 1.430 million 2025, 1.515 million in 2026, and finally 1.535 million in 2027. “While rental affordability is also challenging in absolute terms, the stark deterioration in mortgage affordability has made renting more compelling for potential homeowners,” Viswanathan writes in a separate report. We spoke with Ashworth and Viswanathan about their forecasts for US housing and mortgages, home affordability, and how their projections differ from one region to another.
As Fortune has previously reported, we’re in the middle of the five-year period during which the largest chunk of millennials, those born between 1989 and 1993, are hitting their thirties—the age when first-time homebuying really kicks into gear. The housing market—which is also benefiting from recession-induced low mortgage rates—simply doesn’t have enough homes available to meet that demand. We knew this wave was coming, however; in the decade following the 2008 housing crisis, homebuilding was too conservative. Housing is a risk to economic growth in all G-10 countries, economists Daan Struyven and Yulia Zhestkova wrote in a report.
Existing sales in the bank’s view will rebound in 2025 to 4.240 million in 2025, and 4.369 million and 5.001 million the two years afterward. In 2024, the bank said it will move to 723,000, before climbing to 771,000 and 781,000 in 2025 and 2026, respectively, before hitting 858,000 in 2027.
Raising pets instead of children is also a subtle way to deviate from social norms. Zhang from University of New Hampshire said that pets play an important cultural role as companions to unmarried and childless youths, and seniors whose children don’t live with them. Experts say that there’s a practical reason why the Chinese are opting for pets instead of children. “I am not very surprised to hear about Goldman Sachs’ forecast,” said Lin Zhang, a University of New Hampshire professor who studies entrepreneurship and the digital economy in China. “We could observe similar trends in early developed countries in Europe and East Asia.”
An outlook from Zillow economists at the end of November predicted that home-buying costs will ultimately level off next year. He added the Federal Reserve should be able to achieve a soft-landing of the economy, a forecast which has gained momentum across Wall Street over recent months. There are areas that were expensive and have gotten more expensive, like California and the Pacific Northwest. There are areas that were affordable and have gotten somewhat expensive, like the Southeast. And then there are areas that were cheap and are still relatively cheap, like parts of the Mid-Atlantic and the Midwest.
Now, with the prospect of interest rate cuts on the horizon, home prices are expected to climb more than previously anticipated, according to Goldman Sachs Research. “The supply-demand picture that has been the basis for our call for a multiyear boom in home prices remains intact,” the Goldman Sachs researchers wrote in their report. “Of all the shortages afflicting the U.S. economy, the housing shortage might last the longest.” They don’t see prices correcting anytime soon; in fact, they are forecasting another 6.2% jump in 2023.