US Housing Market Faces Deeper Chill in 2027, Goldman Sachs Forecasts

America's housing market is projected to experience a significant downturn in 2027, with Goldman Sachs forecasting a further decline in sales and activity. The investment bank predicts that only 3.9 million existing homes will be sold in 2027, a decrease from current levels and a substantial 26% below pre-pandemic sales in 2019.

This grim outlook is attributed to persistently high mortgage rates, which have surpassed 7%, further exacerbating affordability issues for potential buyers already contending with elevated home prices. Goldman Sachs economist Ronnie Walker noted in a client note that the "headwind from affordability to increasingly dominate, weighing further on activity."

The core of the market's stagnation lies in the significant disparity between current homeowners and prospective buyers. A vast majority of existing mortgage holders, over 95%, benefit from interest rates considerably lower than current market rates, with 65% holding rates at least two percentage points lower. This "mortgage-rate lock-in effect" disincentivizes homeowners from selling, as moving would likely involve trading a favorable rate for a much higher one.

This phenomenon has contributed to a frozen market, even as demand is constrained by affordability challenges. Mortgage rates have already seen a notable increase since their February lows, diminishing the appeal of purchasing a home. While the inventory of homes for sale has seen some improvement, it remains historically tight, according to Goldman Sachs.

Although some positive factors exist, such as favorable demographic trends and the expectation that wage growth will outpace inflation, these may not be sufficient to revitalize the market. Recent surveys indicate a sharp decline in Americans' intent to purchase homes, and reduced immigration is anticipated to impact household formation and housing demand.

Goldman Sachs' assessment aligns with other industry forecasts. The Mortgage Bankers Association (MBA) recently projected a 5% decrease in total single-family mortgage lending for 2027, falling to just under $2 trillion from an estimated $2.1 trillion in the current year. The MBA also anticipates a slowdown in new-home construction. National home-price growth is expected to decelerate next year before a gradual recovery in 2028.

"We expect declining levels of new construction for both single-family and multifamily homes over the forecast period," stated Joel Kan, MBA deputy chief economist. The downturn in the housing market has already affected related investments, with the SPDR S&P Homebuilders ETF down approximately 9% this year and the iShares Mortgage Real Estate ETF having fallen around 24%.