US home affordability expected to worsen as 2027 approaches

Goldman Sachs Research says existing home sales are likely to decline and house price gains should stay below 1% in the coming year.

According to Goldman Sachs Research, higher mortgage rates are set to outweigh the US housing shortage in 2027, putting pressure on both home sales and new construction.

Economists Ronnie Walker and David Mericle estimate that existing home sales will come in at 3.9 million in 2027, down from about 4 million in 2026 and 26% below 2019 levels.

They also expect home price growth to ease to 0.8% from December to December in 2027, after a 1.1% rise in 2026.

“In 2027, we expect the headwind from affordability to increasingly dominate, weighing further on activity,” Walker and Mericle wrote.

The lock-in effect tightens its hold

More than 95% of US mortgage borrowers currently have interest rates below market levels, and 65% are at least two percentage points under today’s benchmark. That gap has sharply limited the supply of existing homes.

Loans originated during the pandemic now make up a record 42.8% of all outstanding US mortgages, reinforcing the lock-in effect on housing supply.

“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,” Walker and Mericle wrote.

Michael A. Harris, president and CEO of United Mortgage Corporation of America, told Mortgage Professional America that rate lock-in is affecting client choices in ways that may not align with long-term financial goals.

“Rate lock-in continues to influence homeowner decisions, particularly among borrowers who secured mortgage rates below 4%,” Harris said.

“The challenge is that the decision is often being made based on the interest rate alone, rather than the homeowner’s complete financial picture.”

With mortgage rates above 7%, Harris said: “A low interest rate is valuable, but it should not become a financial or personal trap. The best mortgage decision is not always the one with the lowest interest rate. It is the one that best supports the borrower’s overall financial goals.”

The 30-year fixed-rate mortgage was 7.32% on October 22. Goldman Sachs Research expects rates to ease to about 6.4% by the end of 2027, but affordability would still remain historically stretched.

Cotality chief economist Dr. Selma Hepp previously warned that even lower rates may not be enough to reopen the market.

“The risk for housing is that affordability remains trapped: rates may ease only gradually while prices stay elevated due to limited supply,” Hepp said.

Fannie Mae and the MBA point to a thinner pipeline

Fannie Mae’s Economic and Strategic Research (ESR) Group has raised its 2027 mortgage-rate forecast significantly, now expecting the 30-year fixed rate to stay at 7.5% through all four quarters of 2027, up from an earlier projection of 6.7%.

Fannie Mae also sees home price growth slowing to 0.6% in 2027. Single-family mortgage originations are forecast to fall from roughly $2.09 trillion in 2026 to $1.87 trillion in 2027.

Refinance lending is projected to drop from $655 billion to $430 billion, cutting its share of originations from 31% to 23%.

The Mortgage Bankers Association also expects rates to remain above 7% throughout 2027. Mike Fratantoni, the MBA’s chief economist in Washington, DC, said at the group’s annual conference in Chicago that two forces are pushing borrowing costs higher.

“Inflation is too high, leading central banks to raise short-term rates, while budget deficits and debt are unsustainably high, leading bond investors to push up longer-term rates,” he said.

All figures refer to the full-year 2027 forecast period. “Not specified” indicates metrics not covered in the reviewed source material. HPI refers to Fannie Mae’s Home Price Index. Sources: Goldman Sachs Research; Fannie Mae Economic and Strategic Research Group; Mortgage Bankers Association.

Homebuilding faces added pressure

New home sales have been weakening under the burden of elevated borrowing costs, declining 3% in 2026 from the year before.

Goldman Sachs Research expects single-family starts to total 0.87 million in 2027, down from an estimated 0.90 million in 2026.

Residential fixed investment — which includes new construction and is part of gross domestic product — is forecast to contract at annualized rates of 2.5% and 4% in the first two quarters of 2027 before improving to growth of 1% to 2% in the second half as borrowing costs ease.

High mortgage rates are expected to keep US housing activity subdued, and Goldman Sachs Research also points to lower immigration as a drag on household formation.

Adjustable-rate mortgages, which make up less than 10% of all outstanding US mortgages, are unlikely to materially speed up the natural fading of the lock-in effect.

Looking beyond 2027, Goldman Sachs Research expects home sales to gradually rise as borrowers pay down their mortgages over time.

“We expect housing demand to remain tepid,” Walker and Mericle concluded.