The U.S. existing home sales market has been grappling with a severe downturn, hitting levels reminiscent of the late 1970s. Despite a significantly larger population, the market is struggling to regain its footing. Goldman Sachs forecasts a gradual recovery over the next few years, hindered by deteriorating housing affordability and elevated mortgage rates.

A Gradual Recovery

Goldman Sachs predicts that existing home sales will rise modestly from 4.1 million in 2024 to 4.5 million by 2027. This recovery is markedly slow compared to the peak of 6.1 million sales during the Pandemic Housing Boom in 2021 and the 5.3 million sales in 2019. The sluggish pace underscores the challenges the market faces in regaining its former momentum.

Mortgage Rates and Home Prices

The average 30-year fixed mortgage rate is expected to decrease gradually, reaching 6.5% by the end of 2024 and 6.3% by the end of 2025. While this possible reduction would be a positive development, it remains higher than the historically low rates seen during the pandemic. The rates of the pandemic continue to weigh on the market by keeping homeowners or investors locked into their homes. Why walk away from a rate so low they may never see it again in this lifetime?

U.S. home prices are projected to rise by 3.8% in 2024 and 4.4% in 2025. These steady increases indicate a resilient market despite the overall slowdown in sales. However, the growth is expected to vary regionally, with price corrections in some pandemic boomtowns, particularly in parts of Texas and the Mountain West, while the Northeast and Midwest are likely to see continued price rises due to tight inventory.

Affordability Challenges

Housing affordability has significantly deteriorated, leading to a pullback by both buyers and sellers. Many homeowners are reluctant to sell, as they face the prospect of moving from a mortgage rate of around 3% to one as high as 7%. This "lock-in effect" has compounded the market's challenges, reducing the overall number of transactions.

Regional Price Variations

The housing market's performance is not uniform across the country. While some regions are experiencing price corrections, particularly in pandemic boomtowns, other areas like the Northeast and Midwest are seeing continued price increases due to limited inventory.

New Home Sales

The new home sales market is outperforming the existing home sales market. Builders are not constrained by the "lock-in effect" and can adjust prices or offer mortgage rate buydowns to sustain sales. This flexibility has allowed new home sales to remain more robust in the face of broader market challenges.

Historical Comparison

For perspective, consider this historical comparison: in April 1978, there were 4.09 million U.S. existing home sales, while in April 2024, the figure stands at 4.14 million. This is despite the U.S. population growing from 223 million in 1978 to 341 million in 2024. The comparison highlights the depth of the current market downturn.

As we navigate through these challenging times, it is essential to keep an eye on the broader economic indicators and regional variations that will shape the future of the housing market. While the road to recovery may be slow, understanding the nuances and preparing for gradual improvements will be key for both buyers and sellers in the coming years.

In summary, the U.S. existing home sales market is on a path to recovery, albeit a slow one. With mortgage rates expected to drop and home prices to rise steadily, the market will need time to regain its footing. Regional variations and the performance of new home sales offer a nuanced picture of the market's dynamics.

For more insights and updates, stay tuned to our blog and ensure you're equipped with the knowledge to make informed decisions in this dynamic market.

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