Will House Prices Go Down? Goldman Sachs Gives Housing Market Prediction

Goldman Sachs expects home prices across the U.S. to grow modestly in 2024 before starting to really bounce back in the following years, according to its latest prediction.

The company, one of the world's most prominent investment banks, released its latest housing forecasts for the next four years, estimating that home prices will grow by 0.6 percent in 2024, by 3.8 percent in 2025, and by 4.9 percent in both 2026.

While Goldman Sachs' predictions are positive for the years following 2024, next year would actually have the slowest estimated growth between 2023 and 2026, according to the company. Preliminary data suggests that U.S. home prices grew by 3.5 percent this year—despite undergoing a correction that ended in early spring, when prices started to bounce back.

The U.S. housing market boomed for two years during the pandemic, as relatively low mortgage rates brought up demand at a time when inventory couldn't match this request for housing, leading prices to skyrocket. When mortgage rates suddenly jumped up in 2022 following the Federal Reserve's campaign to tackle rising inflation, demand was tampered and the prices of homes slid down across the U.S.

But as inventory didn't improve, the housing market only experienced a modest correction and was shielded by a full-on crash in the style of the 2008 Great Recession.

Crucially, Goldman Sachs expects the number of new homes on sale in the U.S. to progressively increase in the years to come. While in 2023 there were 680,000 new home sales, this number is to go up to 723,000 in 2024; 771,000 in 2025; 781,000 in 2026, according to Goldman Sachs' predictions.

Existing home sales are to also increase in the years 2025 and 2026, while in 2024 they will be lower—at 3,834,000—than this year, when they were estimated to be 4,092,000. In 2019, existing home sales were at 5.34 million.

Talking to CNBC on December 8, Goldman Sachs' chief economist Jan Hatzius said that he expects the Fed not to cut rates until the third quarter of 2024, while he previously expected the central bank to only do so in the fourth quarter of the year.

Much of Hatzius' predictions depend on the fact that Goldman Sachs expects the U.S. economy to make a "soft landing" next year—with the unemployment rate staying low, inflation getting closer to the Fed's 2 percent target and the country avoiding a recession—but mortgage rates to stay high for the following few years.

The Federal Reserve has also expressed some moderate optimism for the U.S. economy on Thursday, when it decided to leave interest rates unchanged between 5.25 percent and 5.50 percent and announced that it will soon shift towards cutting rates. The central bank hasn't changed its key rate since July, something that has reflected on mortgage rates, which have recently dropped for five consecutive weeks.

This, in turn, is likely to boost demand for homes, according to experts who told Newsweek that this might be the perfect time for homebuyers to make a move into the market.