As we head toward the end of 2024, it is time to discuss the trend in home prices and the real estate market. Goldman Sachs Research anticipates that U.S. home prices will grow by 4.5% this year and 4.4% in 2025, adjusting previous forecasts due to favorable economic conditions. Analysts attribute the increase to expected Federal Reserve rate cuts, low unemployment, and resilient consumer finances, with mortgage rates projected to decline gradually.

Despite current affordability challenges, home prices continue to climb due to limited supply, strong demand from household formation, and low levels of permanent job losses. Mortgage rates have already decreased from their peak of 7.8% in October 2023 to below 6.5%, making borrowing costs more manageable for buyers. The affordability crisis is expected to ease slowly as mortgage rates decline further and incomes rise modestly, with real disposable income projected to grow by 2.4% this year and 2.1% in 2025.

Regional Variations in Price Growth

Regionally, the strongest price growth is seen in the Midwest, Northeast, and parts of California, where affordability and limited supply are key drivers. Cities like Cleveland, Chicago, New York, Boston, and San Diego have performed well. California's tight housing regulations and low financial distress have helped it outperform expectations, with some areas like San Jose projected to see up to 10% appreciation over the next year. Conversely, the Southeast faces more significant challenges, transforming it from a relatively affordable market into one of the least affordable.

Overall, while affordability remains a pressing issue, Goldman Sachs and other data indicates a slow, steady return to more normalized levels by the end of the decade, driven by gradually improving economic conditions and a soft landing for housing costs.

Source: https://www.goldmansachs.com/insights/articles/us-house-prices-are-forecast-to-rise-more-than-4-percent-next-year