Mortgage rates will stay above 6% through 2025, Goldman Sachs has said

Mortgage rates will stay above 6% through 2025, Goldman Sachs has said.

Goldman Sachs has adjusted its forecast, anticipating a decrease in 30-year mortgage rates to 6.3% by the close of 2024 and a further dip to 6% in 2025 as the Federal Reserve initiates interest rate reductions. This revision contrasts with Goldman's previous projections of 7.1% and 6.6% for the respective periods. Analyst Roger Ashworth explained that the modification is based on expectations of the Fed implementing five cuts in 2024 amid a robust economic growth scenario and a narrowing gap between mortgage rates and Treasury yields.

As of last week, the average 30-year mortgage rate, according to Freddie Mac, was 6.62%, demonstrating a significant drop from its peak of 7.79% in October. While a continued decline in mortgage rates is expected to modestly enhance housing affordability, Goldman acknowledges that it won't entirely offset the substantial rate increase observed from 2022 to 2023.

The lower mortgage rates are predicted to contribute to stability in the mortgage-backed securities market, leading to an estimated $2 trillion in mortgage originations for 2025, compared to $1.5 trillion in 2023. Goldman anticipates much of this growth to be driven by heightened refinance activity, as homeowners from the past year seek to secure lower mortgage rates.