Goldman Sachs Projects Mortgage Rates at 6.3 Percent in 2027 with Modest Home Price Gains

Walker attributes tepid demand to the post-2021 rate shock that left nearly 80 percent of mortgaged households with rates at least 2 percentage points below current levels. Residential fixed investment contracted 5 percent annualized in Q2 after an 8 percent drop in Q1, reflecting both weather and the rebound in borrowing costs. Existing-home turnover therefore remains the binding constraint rather than new construction, which has held 4 percent above 2019 levels despite higher rates.

The same rate path that compresses turnover also widens wealth gaps. Households able to retain sub-4 percent mortgages capture ongoing price appreciation while new entrants face debt-service ratios that have risen 8-10 percentage points since 2021. Census and FHFA data show the national shortage easing only marginally, from 3.8 million units to roughly 3.4 million, as single-family starts slow once builder margins revert to pre-pandemic norms. Fed funds projections embedded in the Goldman note imply no material relief until at least late 2027.

Net supply gains from higher turnover will stay limited because most moves simply reallocate existing stock. Broker commissions, which carry a 15 percent weight in residential investment, therefore provide only marginal GDP support. Absent a sustained CPI print below 2.4 percent for three quarters, the Fed's reaction function keeps the housing market in a low-velocity equilibrium that transfers wealth from younger cohorts to existing owners.

Forward indicators point to single-family starts declining another 3-5 percent in 2026 once the shortage buffer narrows further. Multifamily completions will add supply but target renters rather than ownership, leaving the ownership affordability gap intact through the forecast horizon.