Goldman Sachs Forecasts 1.8% Increase in Home Prices for 2023

Summary:

• Goldman Sachs revises its forecast, predicting a 1.8% increase in home prices for 2023.
• Rising mortgage rates and housing supply scarcity drive the upward movement in home prices.
• Rental market sees increased demand, contributing to inflation and affordability challenges.
• Homeownership versus affordability debate expected to take center stage in an election year.
• Potential policy changes, including investor incentives, could shape the future housing market.

The housing market has been a source of concern for investors and consumers throughout the year, and Goldman Sachs has recently adjusted its home price forecast. Let's turn to Danny Romero for a breakdown of the situation.

Revised Forecast Indicates Positive Price Trend

Goldman Sachs has updated its projection for home prices, now anticipating a 1.8% increase in 2023. This stands in contrast to their previous estimate, which suggested a 2.2% decline. The significance lies in the impact on home affordability, given that mortgage rates are hovering around 7%. The prior expectation was that rising mortgage rates would lead to price drops.

Market Movement and Supply Dynamics

Despite a 13% decrease from last year's peak, current home prices remain 26% higher than those during Q1 2020. The market shift is attributed to both falling mortgage rates and a scarcity of housing supply. The number of homes available for sale, currently at one million, pales in comparison to the pre-pandemic figure of around 2 million. This shortage of listings is a key driver of the upward price movement.

Rental Market Implications

Goldman Sachs acknowledges the growing concern surrounding rental affordability. As home ownership remains financially out of reach for many, the rental market is experiencing an influx of tenants. Elevated demand for rentals contributes to inflation and complicates the affordability issue. This dichotomy between homeowners and potential buyers will likely prompt discussions on affordability, particularly in an election year. Home associations are anticipated to lobby for policy changes, including potential tax incentives for real estate investors.

Future Prospects and Challenges

Given the trend of rising home prices, the challenge lies in balancing the interests of homeowners benefiting from increased home equity and potential buyers seeking lower prices. As mortgage rates rise, the need for such balance becomes more pronounced. As we head into the election year, Capitol Hill is expected to witness debates on affordability measures, potentially involving incentives for investors. The complex interplay of economic factors adds nuance to the ongoing housing debate.

Conclusion

The Goldman Sachs forecast adjustment, predicting a 1.8% rise in home prices for 2023, showcases the dynamic nature of the housing market. Affordability concerns persist, prompting discussions on potential solutions and policy changes to address the needs of homeowners and aspiring buyers alike.

Danny Romero provides a comprehensive update on the evolving housing market landscape and the implications for both homeowners and potential buyers.