Goldman Sachs chief economist thinks housing affordability is so strained that existing home sales will remain suppressed through 2026

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Jan Hatzius, chief economist at Goldman Sachs, now expects Fed Chair Jerome Powell to announce a rate cut in Q3 2024, advancing his previous prediction of Q4 2024. Appearing on CNBC, he also pushed back against some of his Wall Street peers who think the first Fed rate cut could come sooner—as early as March.

“March at this point is half-priced [for a Fed rate cut], and I think a lot would have to happen for them to go that soon,” Hatzius said on CNBC. He added that the market got “ahead of itself.”

On Monday, Hatzius’s team released their economic and housing forecasts. Let’s take a look.

According to Goldman Sachs’ forecast model, the U.S. economy is poised to pull off a soft landing as both the unemployment rate stays low and inflation drifts closer to the Fed’s 2.0% target.

However, analysts at Goldman Sachs don't believe that Fed rate cuts or a soft landing will have a significant impact on bringing down the 10-year Treasury yield. Goldman Sachs expects the 10-year Treasury yield to average 4.55% in 2024 and 4.50% in 2026 and 2027, slightly above today's close of 4.21%.

If Goldman Sachs nails this call, it’d mean that mortgage rates would stay elevated for years to come.

At today’s spread* (285 bps), a 10-year Treasury yield of 4.50% would translate into a 7.35% average 30-year fixed mortgage rate. At a spread closer to historical norms (175 bps), a 10-year Treasury yield of 4.50% would translate into a 6.25% average 30-year fixed mortgage rate.

Moving forward, Goldman Sachs' forecast model anticipates that strained housing affordability, which has hindered many sellers and buyers, will keep U.S. existing home sales suppressed for the next several years. The projections estimate sales at 3.83 million in 2024, 4.24 million in 2025, and 4.37 million in 2026.

Goldman Sachs does not expect a meaningful recovery until 2027 when it anticipates U.S. existing home sales to reach 5.00 million. This figure would still fall below pre-pandemic levels in 2019 (5.34 million) and considerably lower than the Pandemic Housing Boom frenzy in 2021 (6.12 million).

Among forecasters, Goldman Sachs’ existing home sales prediction is a bit more bearish. Fannie Mae expects existing home sales to come in at 4.04 million in 2024, while the Mortgage Bankers Association is forecasting 4.40 million next year.

Despite the drawdown in existing home sales, Goldman Sachs doesn’t think U.S. home prices will fall. The forecast put out by its chief economist on Monday has U.S. home prices rising +0.6 in 2024, +3.8% in 2025, +4.9% in 2026, and +4.9% in 2027.

Keep in mind, if Goldman Sachs is correct, and home prices on a national level rise a slim +0.6% in 2024, it’d likely mean that several regional markets see year-over-year declines.

*The spread is the difference between the 30-year fixed mortgage rate and the 10-year Treasury yield.