These 4 charts explain why the housing market isn’t getting affordable anytime soon

The US housing market isn’t likely to get affordable anytime soon.

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Low inventory and high mortgage rates are keeping the US housing market unaffordable.
Goldman Sachs revised its forecast for home prices and now see them climbing this year instead of dropping.
These four charts explain the state of the housing market and the bank’s outlook. 

On Tuesday, Goldman Sachs strategists told clients they no longer expect home prices to decline this year.

Rather than a 2.2% slide for 2023, the bank now expects a 1.8% increase thanks to persistent inventory snags and other factors juicing Americans’ demand for homes. 

Americans have grappled with low affordability in the housing market. Mortgage rates hovering around 7% have kept current owners unwilling to part ways with low rates they secured previously. That has contributed to the limited housing supply, which in turn has kept prices from falling and sidelined many prospective buyers.

These four charts explain the state of the housing market and the bank’s outlook. 

Goldman’s Housing Affordability Index breached a new record low in August. The gauge is based on household income, housing prices, and mortgage rates.

Goldman Sachs Investment Research

Even with incomes ticking higher, they haven’t been able to keep pace with this year’s skyrocketing rates combined with years worth of home value appreciation. To that point, the share of houses worth $1 million or more is closing in on an all-time high this year.

The bank forecasts mortgage rates to fall by about 100 basis points through the end of 2024, which could “somewhat” stabilize affordability.

Meanwhile, the inventory of existing homes has hit historic lows after declining steadily for a decade. 

Depletion of housing market inventory has resumed.

Goldman Sachs Global Investment Research, National Association of Realtors

“New listings are being added at the lowest pace on record, driving positive net absorption even amid paltry purchase application volume,” Goldman strategists said.

And much of the supply of newly built homes are still under construction, meaning they do little to ease the current inventory shortage in existing homes.

The bank also highlighted that new home completions remain below pre-pandemic levels, and housing starts posted a slight decrease in June.

Goldman Sachs Investment Research

Separate from the supply side, demand is also more robust than expected, according to Goldman Sachs, and much of it can be traced to non-economic sources such as household formation — which is well above its long-term trend — and seasonal turnover. 

“Homebuyers have demonstrated behavior that, in our view, reflects unsustainable adaptations to elevated mortgage rates,” the strategists said. “For example, the average debt-to-income ratio on conforming purchase mortgages is over 38 percent, a significant aberration from post-Global Financial Crisis averages.”

Goldman Sachs Investment Research

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