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Mortgage rates will stay high through 2024, dipping to just under 7% at year-end, Goldman Sachs forecasts.
This will keep homeowners off the market, and the housing turnover rate will fall to its lowest since the 1990s.
Higher rates will also mean more moderate price growth, with a 1.3% year-on-year rise expected in 2024.
Hopes for a 2024 housing market rebound should be kept in check, as sustained multi-decade highs in mortgage rates will push existing home sales to lows not seen since the early 1990s, Goldman Sachs said in a report on Monday.
This expected lack of housing turnover will stem from the same factors as it has this year — elevated mortgage rates, which have recently climbed as high as 8%, have kept current homeowners off the market.
With almost 60% of mortgage borrowers holding onto rates four percentage points below current levels, “buying a new home would require them to prepay their current mortgage and take out a new mortgage at a significantly higher rate,” Goldman wrote.
This lock-in effect should continue as mortgages likely won’t fall lower than just under 7% by the end of 2024, the report said. The low vacancy rate will weigh heavily on the gross housing inventory, adding pressure on the creation of new homes, instead.
Though housing starts are usually sensitive to mortgage rates themselves, Goldman has previously found that this relationship weakens if homeowner vacancy rates are low.
“While homebuilding did decline in 2022, the limited available housing supply did indeed reduce the impact of higher interest rates: despite 3.5 [percentage point] higher mortgage rates today, housing starts in September were 5% above 2019 levels,” it wrote.
Still, while the lock-in effect should keep demand steady, Goldman predicts a 4% slide in housing starts next year, with multifamily starts expected to hit the lowest level since 2013.
There are a few reasons for this: on the supply side, homebuilders are already burdened with a growing backlog of multifamily construction, while recession fears and poor absorption rates are already pulling down the issuance of new building permits.
Meanwhile, robust income growth next year should ease demand on multifamily properties, putting pressure on higher-income homes. Disproportionately, such households are owner-occupied properties.
Still, completions will keep up with the multi-decade high pace, Goldman said, helping clear the backlog and add a small increase to the rental vacancy rate.
Home price appreciation will moderate next year as borrowing costs stay high, rising 1.3% year-over-year in 2024. The below-trend level will follow an estimated 3.4% price increase for 2023 — though the current rate is higher, Goldman expects prices to turn negative into the year-end.
The market looks tough, but some commentators are still optimistic. Last week, “Shark Tank” star Barbara Corcoran noted that this may be the best time to buy a house, as mortgages will eventually drop to the 5% level.
When this happens, the lack of housing supply and a fresh increase in demand will send prices surging 10%-15%, she predicted.