The Outlook for US Housing in 2027

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Rising mortgage rates are likely to outweigh a longstanding housing shortage in the US next year, leading to a drop in both the sales of existing homes and the construction of new ones, according to Goldman Sachs Research.

Beyond next year, Goldman Sachs Research expects existing home sales to gradually edge higher, reflecting the natural decay of the lock-in effect that comes from, for example, borrowers paying down their mortgages.

“In 2027, we expect the headwind from affordability to increasingly dominate, weighing further on activity,” economists Ronnie Walker and David Mericle write in a report.

They expect existing home sales to total just 3.9 million in 2027, modestly below their forecast of 4 million for 2026 but 26% below 2019 levels. Against the backdrop of slower home sales, they forecast another year of “anemic” home price growth: 0.8% December-over-December in 2027 after 1.1% this year and 1.2% in 2025.

This year’s jump in mortgage rates—in response to the war in Iran, higher oil prices, and the prospect of hikes by the Federal Reserve—has reduced incentives for homeowners to sell. More than 95% of mortgage borrowers have interest rates below current market rates, creating a “lock-in” effect that is slowing sales.

Rates for 30-year mortgages in the US have climbed to 7.32% (as of October 22). Goldman Sachs Research’s credit strategists expect mortgage rates to decline in 2027 but remain elevated at 6.4%. Even if that decline is realized, affordability will remain at historically poor levels.

Global economic growth in 2027 is projected to continue on a similar trajectory to that of 2026 as lower energy prices offset the fading boosts from fiscal policy and AI, according to Jan Hatzius, Goldman Sachs Research's chief economist. “But the balance of risks is on the downside,” he adds.

Goldman Sachs Research forecasts annual real global economic growth of 2.7% in both 2026 and 2027.

The most immediate concern is that energy prices have again climbed sharply on fears of renewed Middle East escalation, Hatzius writes in a report. This is likely to have negative effects on consumers and energy-importing economies more broadly.

Higher bond yields are also likely to weigh on global growth. Large-scale deficits coupled with AI-linked borrowing and central bank hikes have started to show up more clearly in higher longer-term interest rates, Hatzius writes. If the increase in interest rates is sustained, our economists estimate that it will subtract a cumulative 0.6% from global GDP via weakness in housing, consumer durables, and business investment. But Goldman Sachs Research expects bond yields to pull back as central banks deliver fewer hikes than markets are pricing. “Our strongest global view is that central banks will deliver fewer hikes than currently priced,” Hatzius writes.

“Although AI investment is still rising rapidly, we expect the increase as a share of GDP to slow over the next year,” Hatzius writes. This is likely to weigh on both capital spending growth and consumer spending, which has received an AI-related boost worth an estimated 0.25% of GDP over the last year. “Our own base case remains that AI investment will ultimately pay off in terms of higher productivity and economywide profits,” Hatzius writes.

Governments are moving defense back to the center of economic and industrial strategy, reshaping where capital flows, according to a new white paper by the Goldman Sachs Global Institute.

“This shift is about more than just increased military spending,” the paper says. The focus on security is also lifting other segments of the industrial economy, such as advanced manufacturing and energy technology. A NATO spending target of 5% of GDP, set last year, includes 1.5% for investments to protect critical infrastructure, defend networks, and strengthen the defense industrial base.

Bloomberg | Oct 27

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