In a promising update for homeowners, Goldman Sachs analysts have undertaken a revision of their housing forecasts, yielding positive news. The latest analysis by Goldman Sachs indicates a shift in perspective, as the experts no longer anticipate a decline in home prices for the current year. Instead, their projections point to a modest upturn. Vinay Viswanathan, a seasoned fixed income strategist at Goldman Sachs, shared the revised outlook in a comprehensive note prepared for the firm’s housing division.
Viswanathan stated, “We are revising our home price forecasts higher, to 1.8% for full-year 2023 vs. -2.2% prior, and 3.5% in 2024 vs. 2.8% prior.” These adjustments, as outlined in the note, imply that home prices are poised to maintain relative stability until the conclusion of the year, with a subsequent return to growth patterns in 2024. This transformation comes at a fortuitous juncture, coinciding with the resumption of an upward trajectory in home prices, despite prevailing elevated mortgage rates, which have contributed to a challenging landscape for prospective homeowners.
Notably, Goldman Sachs analysts had formerly projected that heightened mortgage rates would exert downward pressure on home prices. However, this narrative has experienced a turnaround. After a sustained seven-month decline extending into 2023, home prices bucked the trend and reversed their course in February. This positive momentum endured through May, the latest month for which comprehensive data from Case-Shiller’s national price index is available. Craig Lazzara, the adept managing director at S&P DJI, supported this interpretation, affirming that January marked the culmination of consecutive monthly declines.
Key factors underpinning this promising trajectory, as delineated by Viswanathan, are a scarcity of available housing units and persistent robust demand. Existing home inventory presently hovers around the one-million mark, a stark contrast to pre-pandemic levels of approximately two million homes, as highlighted by data from the National Association of Realtors. Despite increased activity in new home construction, the majority of this supply remains in various stages of completion, contributing to a discrepancy with pre-COVID output.
Furthermore, the steadfast demand for housing continues to surpass initial expectations. Initially, Goldman Sachs analysts had anticipated a need for nationwide home price declines, given the record lows witnessed in the firm’s housing affordability index. However, this outlook has evolved due to non-economic factors such as household formation and seasonal turnover, leading to a shift in buyer behavior. Although data suggests a potential moderation in housing turnover, the burgeoning trend in household formation remains a significant driver.
Undeniably, the landscape of housing affordability has deteriorated over the past year due to elevated mortgage rates. Notably, the average rate for a 30-year fixed mortgage recently surged beyond 7%, according to Freddie Mac reports. While many prospective homebuyers have absorbed these augmented costs, Goldman Sachs cautioned against unsustainable adaptations to these unprecedented mortgage rate levels. For instance, the average debt-to-income ratio on conforming purchase mortgages has surpassed 38%, markedly deviating from post-Global Financial Crisis norms.
To alleviate these challenges, Viswanathan posited that an anticipated 100 basis point decrease in mortgage rates by the end of the following year could stabilize housing affordability to some extent. This potential outcome could provide relief to homeowners who had harbored concerns about potential depreciation in their real estate investments. While this projection doesn’t necessarily herald a complete return to pre-pandemic returns for homeowners, it certainly signifies a heartening indication toward a potential appreciation in home values.
However, amidst these positive shifts, the hurdle of persistently high mortgage rates persists, casting a shadow over the feasibility of homeownership for many Americans. A decrease in mortgage rates would serve as a significant step toward enhancing accessibility to housing for a wider demographic. Until such a reduction materializes, the modest rise in home prices may stand as a silver lining in an otherwise challenging homeownership landscape, providing a glimmer of hope for current and prospective homeowners alike.
Source: Yahoo Finance
