The US housing market is being impacted by higher mortgage rates and a lock-in effect, which is constraining both buyers and sellers. The average 30-year fixed mortgage rate reached 7.10% in February 2022, the highest since November 2021, resulting in a drop in demand for properties. Meanwhile, homeowners who locked in lower mortgage rates are holding on to their properties, which is tightening the available inventory. This lock-in effect is constraining both sides of the market, leading to a muted impact from new builds on the current supply and demand balance of housing and ultimately, prices.
Goldman Sachs analysts predict that even if every single-family home under construction was completed and listed on the market, the supply of homes would still be below historic averages, despite the current pipeline of new homes under construction being historically large. This is due to homeowners retaining their low rates, often of 3% or less.
Existing home sales fell by 0.7% in January 2022, marking the twelfth straight decline. The number of new listings also fell 18.7% in January compared to the same time the previous year. Inventory will remain tight as 99% of borrowers have rates below the current market rate and are holding on to their old rates.
While Goldman Sachs expects the lock-in effect to constrain the US housing market, it does not believe it will be enough to stop the home price correction. Goldman Sachs predicts national house prices will fall 6.1% in 2023.