Goldman Sachs says the US housing market will soon slow sharply, as rising mortgage costs put homes out of reach for many Americans
- Goldman Sachs said the US housing market is set to cool sharply, as rising mortgage costs make homes less affordable.
- The Federal Reserve is hiking interest rates hard, and that has driven up bond yields and the cost of mortgages.
Goldman Sachs expects the growth in US home prices to slow down sharply, as rising interest rates push up mortgage costs and make houses much less affordable for average Americans.
The Federal Reserve has raised interest rates at a rapid pace this year, and that has driven up bond yields — which set the tone for mortages. Across the US, mortgage costs shot up at the fastest clip since 1987 this week, with the 30-year rate hitting an average of 5.78% on Thursday.
Goldman analysts led by Daan Struyven said the affordability of housing "has plunged the most in the US recently, and will likely fall further."
To measure affordability, the team looks at the ratio between average income and the cost of mortgage payments.
They found the average American is much less likely to be able to afford a home now than a few months earlier, thanks mostly to the sharp run-up in the cost of a mortgage.
House prices in the US have risen about 38% since the coronavirus pandemic began, according to the Case-Shiller Home Price Index. But that break-neck pace is likely to slow sharply, Goldman's team said Thursday.
"In the US, our latest model update pointed to substantial slowing in home price growth to the low single digits over the next year," Struyven and colleagues wrote in a note.
There are already signs that the Fed's interest-rate hikes are driving a sharp slowdown in the US housing market.
Data released Thursday showed that US housing starts — that is, the number of new housing construction projects that got underway — fell to a 13-month low in May.
The Fed hiked interest rates by a further 75 basis points on Wednesday, taking the federal funds target range to between 1.5 and 1.75%. It stood at 0 to 0.25% as recently as March.