This week, Goldman Sachs shared updated housing and economic forecasts. And they extend all the way through 2027. 

Appearing on CNBC’s Squawk on the Street, Goldman Sachs’ chief economist Jan Hatzius explained why he expects a soft landing for the U.S. economy, with unemployment remaining low and the inflation rate slowly dropping to the Fed’s stated target of 2.0%. 

Given persistent affordability challenges in the housing market, he expects a continued suppression of existing home sales through 2026, with total transactions not reaching 5.0 million until 2027. 

During the CNBC segment, Hatzius responds with a "yes" when asked whether the market has gotten ahead of itself with its expectation of a Fed rate cut in the near future. He believes Fed Chair Jerome Powell is more likely to announce a rate cut in the third quarter of next year—which is a slight upgrade from his earlier estimate of Q4 2024. Hatzius also pushed back against some of his more bullish Wall Street peers who expect the first Fed rate hike sooner—some as early as March 2024.

GOLDMAN SACHS’ CORE ECONOMIC FORECASTS FOR 2024–2027

The above chart shows a steady progression toward the Fed’s target for inflation, along with minimal change in the unemployment rate. 

While Goldman Sachs analysts are forecasting a soft landing for the economy, they don’t expect that or Fed rate cuts to bring about a significant drop in the 10-year Treasury yield. They expect an average of 4.55% in 2024 and 4.50% in 2026 and 2027. If they’re right, it will mean mortgage rates will stay elevated for the next few years, at least. 

With a spread closer to historical norms (175 bps), the same 10-year Treasury yield (4.50%) would give us an average 30-year fixed mortgage rate of 6.25%. 

GOLDMAN SACHS HOUSING FORECASTS FOR 2024–2027

According to the Goldman Sachs forecast model, housing affordability challenges will likely remain with us for the next several years, suppressing existing home sales. 

Projected sales for the next few years: 

• 3.83 million in 2024
• 4.24 million in 2025
• 4.37 million in 2026

Goldman Sachs analysts don’t expect a meaningful recovery for the housing market until 2027 when projected existing home sales reach 5.0 million. And that’s still below pre-pandemic levels (5.34 million in 2019), not to mention sales numbers for the pandemic homebuying frenzy (6.12 million in 2021). 

Compare the bearish projections of Goldman Sachs to recent forecasts from Redfin’s recent forecast, which sees existing home sales rising to 4.5 million by the fourth quarter of 2024. 

Fannie Mae expects home sales to reach 4.04 million in 2024, and the Mortgage Bankers Association is predicting 4.40 million for the coming year. 

But so far, NAR’s predictions are the most bullish of them all, forecasting 4.71 million home sales in 2024. 

WHAT THE GOLDMAN SACHS’ FORECAST MODEL MEANS FOR HOME PRICES

Despite the bearish numbers for existing home sales, Goldman Sachs does not expect U.S. home prices to fall. In fact, the forecast shared by Hatzius on Monday shows prices rising for the next four years:

• +0.6% in 2024
• +3.8% in 2025
• +4.9% in 2026
• +4.9% in 2027

Those home value appreciation figures are values that compound year over year, which is how so many homeowners and investors have generated massive wealth through real estate. 

So, while Goldman Sachs is bearish (comparatively speaking) on total home sale transactions over the next four years, they’re very bullish on U.S. home prices. 

It’s worth noting, too, as Lance Lambert pointed out, that if Goldman Sachs is correct, and home prices increase by a slim 0.6% margin in 2024, we’ll likely see several regional markets with year-over-year declines.