Get ready for a historic slowdown in home-price growth, Goldman says
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- Goldman Sachs expects minimal growth in home prices over the next few years.
- Prices are likely to rise less than 2% this year and next, and less than 4% in 2025 and 2026.
- They may be only 4.5% above their pandemic peak, and 10.1% above their January low, by end-2026.
US home prices are poised for a historic slowdown in growth over the next few years, Goldman Sachs says.
The investment bank's analysts expect the Case-Shiller National Home Price Index to rise just 1.3% this year, 1.7% in 2024, 2.4% in 2025, and 3.8% in 2026, Fortune reported, citing an economic forecast released on Monday. For comparison, US home prices have climbed by an average of 5.5% a year since 1976, the magazine said.
Goldman's forecast suggests home prices will only be 4.5% higher than their pandemic peak at the end of 2026, and just 10.1% above the low point they reached in January this year, Fortune said.
It's worth noting that house prices surged by more than 40% during the pandemic, as the work-from-home boom stoked demand for homes. However, mortgage rates have surged over the last year, making homes less affordable to buyers and putting downward pressure on prices.
The sharp rise in mortgage costs reflects the increase in interest rates from nearly zero to north of 5% since last spring. The Federal Reserve hiked rates in a bid to curb inflation, which hit a 40-year high of 9.1% in June last year.
Annualized inflation cooled to 3% in June this year, not far off the Fed's 2% target. As a result, the US central bank is expected to conclude its hikes and begin cutting rates in time. The improved outlook has alleviated fears that the Fed's policies could choke demand and drag the US economy into recession.
The prospect of lower rates and continued economic growth has boosted stocks, crypto, and other assets this year, as declining borrowing costs and a buoyant economy tend to support asset prices. Against that positive backdrop, it's somewhat surprising that Goldman expects home prices to merely eke out growth over the next few years, even if they experienced a massive surge during the pandemic.