House purchases are expected to plummet further in the closing months of the year, and the recovery may not pick up speed until 2024, according to a new forecast from the investment bank.

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Real estate agents whose business has taken a hit in recent months may need to hang on longer, as forecasters at one giant investment bank say the sales environment is likely to get worse before it gets better.

A new paper released this week by Goldman Sachs predicts home sales will fall to a seasonally adjusted annual rate of 4.7 million in the fourth quarter of the year. These levels, if they bear out, would represent another drop of 12 percent from July’s sales rate even after the steep declines that have already occurred, and suggest the market has yet to hit bottom.

“The outlook for demand continues to benefit from a tight labor market and a continued demographic tailwind from millennials passing through their prime home-buying years,” the report reads. “However, the sustained reduction in affordability, waning pandemic tailwind, and recent decline in purchasing intentions … suggest that home sales are likely to fall further through year-end.”

To add insult to injury, the investment banking giant expects home sales to recover only “modestly” in 2023, portending a full year of sales volume more akin to what the housing market saw in 2012 than in the bustling decade since.

Chart by Goldman Sachs

The expected decline in demand through the end of the year would be driven almost entirely by the market for existing homes, which would see sales rates decline by 12 percent from July through the year’s closing months.

Sales of newly built homes, which have already suffered huge declines, would be unlikely to fall much further, according to Goldman Sachs’ projections.

Goldman Sachs is not yet joining the list of forecasters projecting a broad-based decline in home prices, however.

While some home-price indexes are already seeing declines, ones that account for the changing composition of sales — such as fewer homes selling in higher price points — suggest that home values continue to rise, just at a slowing rate, the report says.

With that in mind, the bank’s research team expects price growth to slow to a rate of 14 percent year-over-year in the final three months of the year, then “stall completely” from 2022 to 2023.

Chart by Goldman Sachs

These forecasts reflect worsening conditions, as Goldman Sachs was previously a bit more bullish on home price growth.

The ongoing imbalance between supply and demand has helped to prop up the home market even amid rising mortgage rates, the report suggests. That explains why transactions — and prices — have yet to fall further amid rising affordability concerns.

But certain sources of demand unique to the pandemic appear to be disappearing more quickly than expected.

“Existing home sales and building permits have fallen more sharply this year in regions where they increased the most in the earlier part of the pandemic,” the report says, “suggesting that the recent declines have also reflected the partial retreat of a pandemic-related boost to housing demand.”

These could result in price decreases in a number of areas of the country, even if broad-based declines are less likely, Goldman Sachs said.

Email Daniel Houston

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