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Goldman Sachs believes in the US housing market recovery

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The analysts have revised their forecast upwards.

What has happened? Goldman Sachs housing analysts no longer think home prices will fall this year. Instead, they are forecasting a slight increase.

Quote. "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," Vinay Viswanathan, a fixed income strategist at Goldman Sachs, wrote in a note for the firm's housing team. “These forecasts imply home prices will remain roughly unchanged through [the] year-end and then return to trend growth levels in 2024.”

The reasons.Home prices have resumed their upward trend, and mortgage rates remain high. Analysts at Goldman Sachs previously believed that higher mortgage rates would put more downward pressure on home prices.

After declining for seven straight months at the end of last year and into 2023, home prices reversed course in February and remained that way until May, according to the Case-Shiller national price index.

According to ViViswanathan, there are two key factors supporting home prices:

  • Housing supply remains limited. The share of homes available for sale on the existing market now stands at about 1 million, while that stock was closer to 2 million units before the pandemic, according to the National Association of Realtors. And while the supply of new homes continues to grow as builders step up their construction plans, most of this new housing inventory  is still under construction. And the number of completed projects remains below pre-COVID levels.
  • Housing demand for housing remains stronger than expected. Homebuyers "demonstrated behavior that, in our view, reflects unsustainable adaptations to elevated mortgage rates," Goldman Sachs noted. For instance, the average debt-to-income ratio on conforming purchase mortgages is over 38%, "a significant aberration from post-Global Financial Crisis averages," Viswanathan wrote.

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