The US housing market is already a nightmare. Goldman Sachs warns it could get even worse – and the outlook is bleakest for young Americans

DAILYMAIL.COM • 2h ago

By SARA MCGIFF, US REAL ESTATE & CONSUMER REPORTER Updated: 06:24 21 Oct 2026

Americans shopping for a new home are feeling the strain after mortgage rates rose above 7 percent, but Goldman Sachs is warning it could get even worse.

Ronnie Walker, an economist at Goldman Sachs, wrote an alarming message to clients on Monday, warning that 2027 could bring even bigger hurdles when it comes to the housing market’s affordability problem.

Walker began by highlighting that mortgage rates have risen nearly 1.5 percentage points since February – even as 60 percent of homeowners have home loans at rates below current market levels.

And around 65 percent of those homeowners are paying mortgage rates at least two percentage points lower than today’s prevailing rate.

As a result, homeowners are deeply reluctant to sell their present homes and buy another – whether they’re growing families who need more room or empty nesters who need less – since that would mean exchanging a cheaper mortgage for a much more expensive one.

This is the so-called mortgage lock-in effect. It greatly reduces the number of properties on the market and makes it very challenging for buyers to find affordable homes.

‘The combination of mortgage borrowers refinancing at low rates en masse in 2020 and 2021 and the high current level of mortgage rates has created a significant financial cost to moving,’ wrote Walker.

‘Buying a new home would require homebuyers to prepay their current mortgage and take out a new mortgage at a significantly higher rate.’

Goldman Sachs expects existing-home sales to reach just 3.9 million next year, slightly below its forecast for 2026 and around 26 percent below 2019 levels, before the pandemic upended the housing market.

For Nashville Compass real estate agent Jake Kennedy, this forecast comes as no surprise.

‘I fear the analysts at Goldman Sachs may be right,’ Kennedy told the Daily Mail.

Kennedy said home prices remain historically high, while rising borrowing costs have significantly eroded buyers’ purchasing power.

He added that an uncertain job market is making prospective buyers increasingly nervous about taking on a major financial commitment, with those still employed feeling as though they are ‘walking on eggshells’ and those out of work feeling hopeless about their prospects.

It’s a shift Kennedy has witnessed firsthand. At an open house he hosted last week in a desirable Nashville neighborhood, he expected around ten groups to come through during the two-hour window.

The home was brand new to the market and priced nearly $100,000 below Nashville’s average closing price, yet Kennedy spent the afternoon sitting there alone.

‘Six or eight weeks ago, that would have been almost unthinkable,’ Kennedy said. ‘And I’m hearing the same story from every agent I know.’

Open house traffic and mortgage applications are both down in Nashville, he said, describing the local real estate market as ‘grinding to a halt.’

Kennedy warned the slowdown could spill beyond housing, predicting that after the holiday season, January and February ‘could see Wall Street being in for a world of hurt.’

The squeeze is being felt most acutely in the middle and lower ends of the market, he said, while luxury real estate appears to be holding up better. But those more affordable segments account for the bulk of the housing market, he warned.

That hesitation is creating a standoff between buyers and sellers that Principal of 4 Brothers Buy Houses Jonathan Carcone expects to continue into 2027, when he predicts the market will remain flat or dip slightly rather than suffer a major crash.

With Goldman forecasting just 3.9 million existing-home sales next year, Carcone expects fewer deals to close and more negotiations over prices and terms, forcing motivated sellers to price their properties realistically.

He added that homeowners with strong cash flow have an incentive to renovate rather than move and give up a low mortgage rate for a more expensive one.

Price cuts are likely on older, overpriced homes with less equity, while poorly priced new listings could spend longer on the market, he told the Daily Mail.

However, homeowners with substantial equity should be better positioned to weather a slowdown.

For buyers with stable cash flow who plan to stay for at least three years, buying at current prices and making improvements could make sense, while existing homeowners with low mortgage rates may be better off upgrading rather than moving, Carcone said.

But a limited supply of homes is only part of the problem, as buyers are also becoming increasingly reluctant to make a move, Walker said.

While demographic trends and expectations that incomes will outpace inflation could support demand, survey-based measures of purchase intentions have fallen sharply in recent months. Reduced immigration is also expected to weigh on household formation, Walker said.

For younger Americans hoping to buy their first home, the outlook could be particularly bleak.

Around nine in 10 adults under 40 say it is harder to buy a home today than it was for their parents’ generation, according to a recent Pew Research Center survey.

The gap between home prices and earnings has widened in recent years. Between 2019 and 2024, the inflation-adjusted median home value rose 30 percent, while the inflation-adjusted median household income for households headed by someone under 40 increased just nine percent, Pew found.

Kennedy warned that the affordability crisis risks creating a generation of Americans who never manage to move beyond renting.

‘I feel like not enough people are talking about right now is how we might be creating a generation of perpetual first-time buyers,’ he said.

‘Many people have done everything they were told to do, save money, build a career, pay your credit cards on time, but no matter what they do, the keys to their first home are slipping farther from their grasp.’

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