Goldman Sachs" Mid Year Housing Outlook" for Lenders, Brokers, and Developers

[Dante Craig]

The latest mid-year housing outlook paints a picture of a US real estate market undergoing a noticeable recalibration. While the boom of recent years has cooled, understanding the nuances of this shift is crucial for everyone involved in this crazy world of Real Estate. As someone deeply immersed in the real estate finance world, having worked with numerous direct lenders and analyzed countless deals, I want to break down what this data means for lenders, brokers, and borrowers/developers alike.

The Big Picture: A Market Slowing its Pace

The data clearly indicates a slowdown in the housing market for 2025, primarily driven by sustained higher mortgage rates and a gradual increase in housing supply. We're seeing a decline in residential fixed investment, with a 1% annualized drop in Q1 and an estimated 10% annualized fall in Q2 2025. Goldman Sachs forecasts residential fixed investment (RFI) growth to be -5.7% in 2025 on a Q4/Q4 basis, a significant shift from the +2.8% in 2024. This isn't necessarily a crash, but rather a market adjusting to new economic realities.

What This Means for Real Estate Lenders:

For lenders, this evolving landscape presents both challenges and areas for strategic focus:

• Loan Origination Headwinds: Expect potentially lower volumes of new loan originations, particularly for traditional purchase mortgages. The "lock-in" effect is strong: 87% of mortgage borrowers have interest rates below current market rates, and 66% have rates 2 percentage points below market rates. This strongly disincentivizes them from moving. We expect annual existing home sales of just 4.1 million in 2025, 23% below 2019 levels.
• Refinance Landscape Shifts: The traditional refinance boom driven by falling rates is unlikely in this environment. Lenders may need to explore alternative refinance products or focus on borrowers with specific needs. However, the reduced purchase market might make the overall lending environment more competitive.
• Increased Focus on Credit Quality: With moderated home price appreciation and potentially longer marketing times, lenders will need to be more vigilant in assessing and managing credit risk. Thorough underwriting will be paramount. National home prices are expected to rise just 0.2% December-over-December this year and 0.8% next year.
• Navigating the Multifamily Market: The backlog of multifamily units under construction has contracted by 26% but is still 21% greater than in 2019. With multifamily housing completions running at the fastest pace in nearly four decades, there's a potential oversupply in some multifamily markets. Lenders need to carefully evaluate new multifamily projects and monitor the performance of their existing portfolios in this segment. Multifamily starts are forecasted to total 0.375 million in 2025, down from 0.47 million in 2023.
• Opportunities in Niche Areas: While the traditional purchase market cools, lenders might find opportunities in areas like renovation financing, as the report forecasts continued growth in renovations spending. (Flippers are getting by)
• What This Means for Real Estate Brokers:
• Real estate brokers will need to continue adapt to a market with potentially lower transaction volumes and increased competition:
• Lower Sales Volume: The expectation of annual existing home sales remaining low (4.1 million in 2025) means fewer transactions for brokers, directly impacting commission income.
• The "Lock-in" Challenge: Convincing homeowners with significantly lower mortgage rates (e.g., 66% have rates 2pp below market rates ) to sell will be a major hurdle. Brokers will need to become adept at highlighting other motivations for moving, such as life changes or specific property needs.
• Increased Competition: With fewer transactions, brokers may face increased competition for available listings and buyers.
• Educating Clients is Key: Brokers will play a vital role in educating both buyers and sellers about the current market dynamics, including affordability challenges, which are evidenced by the widespread use of mortgage-rate buydowns, with roughly 40% of new home sales featuring such incentives.
• What This Means for Real Estate Borrowers and Developers:
• Borrowers and developers will need to navigate a landscape with affordability constraints and potentially softer demand in certain sectors:
• More Cautious Development: Single-family starts and permits have declined 20% and 13% respectively since February 2025, and homebuilder sentiment has fallen to its lowest level since 2022. This suggests developers are already exercising caution. Single-family housing starts are expected to decline 11% this year to 0.91 million in total (vs. 1.02 million in 2024).
• Affordability Remains a Hurdle: The continued widespread use of mortgage rate buydowns suggests that affordability is an increasingly binding constraint for homebuyers. Developers may need to focus on building more efficiently or offering incentives to attract buyers.
• Managing Increased Vacancy: The homeowner vacancy rate is estimated to rise from 1.1% in Q1 2025 to 1.4% in Q4 2025 and 1.6% in Q4 2026. Rental vacancy rates have also risen from a trough of 5.6% to 7.1%. Developers of both for-sale and rental properties need to be mindful of absorption rates and pricing strategies.
• Tempered Price Appreciation Expectations: The forecast of modest home price growth (0.2% this year, 0.8% next year) suggests that quick and substantial returns on investment may be less likely in the near term.
• Strategic Market Selection is Crucial: Homebuilders have slowed permitting activity more in states with larger increases in vacancy rates. Developers will need to be highly selective in choosing where to build, focusing on areas with strong underlying demand and limited oversupply. Reduced immigration is also likely to weigh on household formation, estimated at about 1.1 million per year for the next couple of years, below the recent trend.

In Conclusion:

The mid-year housing outlook signals a period of adjustment in the US real estate market. While the rapid growth of recent years may have subsided, opportunities still exist for those who understand the shifting dynamics. Lenders will need to adapt their strategies to a potentially lower-volume market with increased credit risk awareness. ( We are lending at FICOs low as 550) Brokers will need to navigate a more competitive landscape with a focus on client education and relationship building. Developers and borrowers will need to be cautious in their planning, considering affordability constraints and potential market saturation in certain areas. My goal is to both teach and learn more within this dynamic industry.

If you're navigating the complexities of real estate finance in this evolving market and have questions, please don't hesitate to connect. I'm always happy to share my insights and help you make informed decisions.