Goldman Sachs predicts mortgage rates will stay above 6% through 2025
According to estimates from Goldman Sachs, mortgage rates are expected to remain above 6% through 2025. The investment bank also noted that the decline in mortgage rates should offer marginal improvements in housing affordability.
The average 30-year mortgage rate fell to 6.62% last week after hitting a cycle-high of 7.8%. Goldman Sachs’ Chart of the Day plots the firm’s expectation that the 30-year mortgage rate will stay above 6% through 2025.
Goldman Sachs expects 30-year mortgage rates to drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. This is a revision from their previous forecast of 7.1% by the end of 2024 and 6.6% by the end of 2025.
Analyst Roger Ashworth said in a note on Wednesday that this revision reflects the expectation that the Fed will deliver five cuts in 2024 and some compression in the spread between mortgage rates and Treasury yields, amidst a robust growth backdrop for the economy.
The average 30-year mortgage rate stood at 6.62% last week, representing a sharp decline from its cycle high of 7.79% reached in October. Goldman Sachs stated that a continued decline in mortgage rates will marginally improve housing affordability, though it won’t completely unwind the sharp increase seen in mortgage rates from 2022 to 2023.
Lower mortgage rates should bring stability to the mortgage-backed securities market and boost mortgage originations to $2 trillion in 2025, compared to $1.5 trillion in 2023, according to Goldman Sachs. Ashworth also noted that much of that expected growth in mortgage originations will likely be driven by heightened refinance activity, as consumers seek to lock-in a lower mortgage rate.
This article was originally published on Business Insider.