Goldman Sachs Economists Expect Interest Rates to Remain Elevated During Market Downturn

As interest rates inch closer to 7%, the Case-Shiller index is showing its largest month-over-month decline since 2012, and experts say demand will continue to fall if a housing affordability crisis continues to push more prospective buyers out of the market. Mortgage rates are expected to continue rising as the Fed combats runaway inflation in the U.S. economy, and a drop in mortgage applications coincides with falling homebuyer sentiment, which recently plunged to the lowest level since 2011, MarketWatch reports.

As the housing market enters into a post-pandemic downturn, economists predict that home prices could fall by as much as 20% in overpriced metros like Boise and San Diego, but inflated borrowing costs will lead to even slower home sales in the months to come.

Mortgage rates will “remain persistently high,” the Wall Street bank said, “causing unsustainable levels of housing affordability to continue weighing on housing demand.”

Buyers who continue to stay on the sidelines, spooked by the rates, have continued to rent while waiting out the downturn. And rents have been a lot more affordable than owning a home at these rates.

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