Despite some signs that interest rates may be leveling off and housing activity showing signs of life, the big investment banker says next year will still be a hard one for the building trade.
There are some indications from the Federal Reserve that interest rates may be topping out while small pockets of the new home construction sector are starting to bottom out but the big investment banking firm Goldman Sachs is forecasting 2024 will see little change from what the American economy has been dealing with for much of the past 18 to 24 months.
For home builders and others in the construction sector, the news is not encouraging even if Goldman is saying the backlog of multi-family units already under construction is starting to come down indicating some encouragement for the trade. It also says it sees strength in the rental market from those who are being priced out of the housing market.
In a new report on the overall housing market, Goldman said higher mortgage rates are “likely to remain elevated for the foreseeable future,” resulting in only 3.8 million existing home sales next year, a 25% drop from 2022. Those sales are expected to total 4.1 million this year, which is down from 5.1 million in 2022.
The new housing market is also in for tough times in 2024, Goldman said: they are expecting a 4% drop to 1.34 million units next year, with much of that decline coming in multifamily construction.
The catalyst for all of this is of course mortgage rates and the lower percentages being paid by existing homeowners who are reluctant to give them up. It said that virtually all of the existing mortgage borrowers have interest rates below current market rates. Nearly nine out of ten have rates two percentage points below market, and almost two-thirds have rates four percentage points lower.
Goldman said it expects mortgage rates to remain elevated for the “foreseeable future,” declining slightly to just under 7% by the end of 2024.
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