US home prices are projected to increase by 5% in 2023, up from the previous forecast of 1.9%, according to Goldman Sachs Research.
This upward revision is based on a number of factors, including the prospect of interest rate cuts and strong momentum in housing prices.
The Federal Reserve has signaled that it may cut interest rates in the first quarter of 2024, which has led to expectations that 30-year fixed mortgage rates will fall to 6.3% by the end of the year. This will make homes slightly more affordable and help to support higher home prices.
Recent home price index releases have shown strong momentum, with the annualized rate running around 8%. This, combined with low inventory and stable demand, is expected to support higher home prices in the coming year.
On the other hand, Goldman Sachs Research’s forecasts are based on different models that incorporate the largest 380 metros, rather than a national model. This allows for a more nuanced view of the housing market, with housing falling into three main buckets: expensive areas that have gotten more expensive, affordable areas that have become somewhat expensive, and relatively cheap areas that are expected to see the strongest growth.
In case of rental, affordability is still a factor for many potential home buyers, particularly those in the largest demographic of 30- to 39-year-olds. With financing costs higher than they have been in recent years, it is still cheaper to rent than to buy in many cases. However, mortgage affordability is expected to improve slightly in the near term under Goldman Sachs Research’s baseline housing and mortgage forecasts.
This article was based on a Goldman Sachs Report which can be found at the following link.
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