Home Price Growth May Slow This Year

HPA will likely stay slightly below trend but still positive

With these factors in mind, our strategists also lowered their US home price appreciation (HPA) expectations to 3.2% in 2025 and 1.9% in 2026, from prior full-year forecasts of 3.4% and 4%, respectively.

“While the magnitude of our 2025 forecast revision may seem minor, we think this is justified by a housing market that we expect to be stuck in a tug of war between rates and growth,” writes Goldman Sachs Research strategist Vinay Viswanathan in the team’s latest note.

Goldman Sachs Research thinks lower yields will bring modest affordability relief this year

A silver lining: Our strategists estimate that housing affordability this year will slightly improve and reset to levels last seen near the start of the Fed’s hiking cycle in December 2015, even when accounting for expected weakness in income growth. Even though affordability remains well below healthy levels, any improvement could bump up housing demand as inventory remains persistently low.

Going into next year, Goldman Sachs Research believes HPA may have more room to soften as rates rise (without entering into a severe recession), housing inventories grow, and tariff risks linger.

Softer economy could drive home sales

While there’s still a lot of uncertainty surrounding the economy and mortgage rates, the expected lowering of rates will likely encourage more homebuyers to enter the market.

Goldman Sachs Research expects the volume of new mortgages (mortgage origination) will rise to total $2 trillion in 2025 (compared to $1.78 trillion in 2024). Our strategists believe homebuying activity will be modestly stronger. Even though homebuilders will face higher construction costs (especially due to the cost of lumber), new home sales are expected to stay resilient even if existing home sales remain weak.

Rise in mortgage refinancing if rates fall

Should the mortgage rates fall as anticipated, Goldman Sachs Research believes there will be a 36% year-on-year increase in mortgage refinancing activity. For context, if mortgage rates fall to 6.1%, our strategists expect 20% of borrowers at above-market rates will have incentive to refinance their mortgages.

Our strategists believe there will be more cash-out refinancing (replacing your current mortgage with a larger loan and “cash out” the difference) given substantial untapped home equity in the mortgage market, although 85% of mortgage equity is already locked in loan rates below 5%.

As the impact of tariffs is expected ease beyond this year, mortgage rates may rise again and will likely dampen new mortgages and homebuying activity. Instead, homeowners may turn to second-lien home equity products such as a home equity line of credit (HELOC) or take out a second mortgage to pay for repairs or renovations.

Where home prices may diverge

Home prices in the south – such as Florida and Texas – are likely to rise at a slower pace, according to Goldman Sachs Research. Mid-Atlantic and California, however, could see home prices appreciate at a faster pace.

Our strategists believe the prices are influenced by housing supply. For instance, in Austin (Texas), housing inventory has increased at an unusually fast pace, partly driven by changes in land use regulation that allow for more construction on less land.

This regional dispersion can be seen in single-family home investors in the last quarter of 2024, where purchases in Orlando declined by 28% year over year, but San Francisco rose by 19% by the year. Our strategists believe this regional dispersion has more room to run.

However, keep in mind that these forecasts are subject to change as policy uncertainty remains.