Goldman’s recent report to clients paints a bleak picture for the housing market, particularly regarding housing affordability in 2025. With mortgage rates expected to remain high and housing prices maintaining their record levels, the challenges for new buyers look to become even more dire. Analysts Susan Maklari and Charles Perron-Piche predict that mortgage rates will stabilize in the low-to-mid 6% range next year, leading to existing home sales being approximately 24% lower than the average seen from 2015 to 2019. The firm indicates that the ongoing affordability crisis will persist, implying that many buyers will likely remain unable to enter the market and thus miss out on homeownership.
Despite expectations that the Federal Reserve may cut rates by as much as 125 basis points until September 2025, Goldman’s credit strategy team forecasts only a modest dip in the 30-year fixed mortgage rate. By the end of 2025, projections suggest the rate may stand at 6.3%, only a slight decrease from an anticipated 6.6% at the end of 2024. This marginal improvement fails to alleviate the pressure on buyers, especially in the context of the latest inflation data, which show a ‘red hot’ Producer Price Index (PPI) reading. Analysts believe this data indicates that long-term yields will remain elevated, contradicting any dovish sentiment aiming to anticipate lower rates in the near future.
The persistent situation reveals that affordability remains a critical issue for would-be homebuyers. Goldman reports that the monthly mortgage payment for a median-priced single-family home consumes around 35% of the typical household’s income— a slight decrease from 39% a year ago but still significantly above the widely accepted 30% threshold for housing affordability as deemed by most lenders. This high percentage underlines the financial burden faced by buyers and exacerbates the challenge of transitioning from renting to owning a home.
The report further notes that existing home transactions will likely remain sluggish, predicted to reach only 4.1 million units in 2025 compared to the 2015-19 average of 5.4 million. This phenomenon is largely attributed to the “lock-in effect,” where current homeowners become hesitant to sell and buy new homes even if mortgage rates drop slightly. The reluctance stems from the fear of incurring higher payments or losing advantageous existing mortgage terms. Therefore, the dynamics within the housing market are expected to create enduring challenges for new buyers.
In addition to these daunting statistics, Goldman also introduced a state affordability tracker for the most recent month, illustrating how changing rates and home prices are interfacing with monthly mortgage payments as a percentage of income. As home prices are projected to rise by about 3% year-on-year, they are poised to maintain affordability challenges for many households. Consequently, unless significant changes occur—such as a dramatic increase in housing inventory or substantial rate reductions—the trend of high mortgage payments as a share of income is set to continue.
In conclusion, Goldman’s insights reflect a challenging environment for prospective homebuyers, with issues of affordability deeply entrenched. The sustained levels of high mortgage rates combined with escalating home prices will likely keep many on the sidelines, thwarting chances for new entrants in the housing market. With no substantial relief in sight, industry stakeholders and potential homeowners will need to navigate a landscape fraught with financial obstacles, underscoring the importance of comprehensive strategies to enhance access to affordable housing options.
