Once again, Goldman Sachs is changing its expectations over home prices and the mortgage rates.

In both these cases, the analysts of the firm have been revising their forecasts a little higher for the year, with the current re-acceleration in the home prices that took them a surprise, as was said by Roger Ashworth, Goldman Sachs managing director who wrote the same in a note for the housing team of the firm.

The team is now expecting the home prices to appreciate by 2% each season to adjust the basis for the year, which is up from the earlier forecast where the gain was 1.8%. While speaking of the mortgage rates, the analysts have been expecting the rate on the 30-year mortgage to finally end at 7.6% in 2023, which is a rise from the previous 7.1%.

“An unfriendly byproduct of our forecasts for resilient home prices and limited rates relief is enduringly poor housing affordability,”

Ashworth added.

“While we acknowledge that the Case-Shiller index incorporates significant time lags, a particularly important feature of this print since mortgage rates only breached 7% towards the end of August, the continued strength of the data surprised us,”

Ashworth further wrote.

He specifically noted the outperformance of the coastal markets, which were “unaffordable.” For example, San Diego witnessed a 1.7% price profit, while the home prices in Seattle had settled in higher at around 1.5%.

Keeping all the circumstances in mind, Goldman Sachs has been forecasting that the home prices have a chance of rising by 1.9% in 2024. However, in 2025, the company is expecting the home prices to rest at 2.8% for the complete year. Regionally, these figures may have looked different.

“We continue to expect the path for home prices to be highly varied at the metro level, particularly favoring cheaper cities with inventory constraints (i.e., older MSAs in the Midwest and Mid-Atlantic) despite the recent strength in expensive coastal metros,”

Ashworth mentioned.

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