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Goldman Sachs is changing its expectations for home price growth this year as mortgage rates move lower.

Goldman strategists led by Vinay Viswanathan revised up their forecasts for home prices growth this year, expecting prices will now rise 4.5% in 2024, up from 4.2% previously.

The change comes mortgage rates have moved significantly downward. The average rate on a 30-year fixed rate mortgage hit its lowest level since early February last week, according to Freddie Mac. An update on their weekly data will be published later today.

The Federal Reserve is set to cut interest rates starting in September.

But expectations for the Fed to move have already pushed mortgage rates lower, improving affordability while putting more upward pressure on home prices.

“While purchase mortgage applications have yet to respond to lower rates, we think this tailwind will materialize in coming months as rates stay in a lower range,” Viswanathan wrote in a note. “Even a small change in mortgage rates can have a material impact on affordability.”

Home prices hit a record high in May but price appreciation decelerated from the previous month, according to the S&P CoreLogic Case-Shiller Index.

The lack of housing supply has pushed home prices to new highs even as rates challenge affordability. But with lower rates on the horizon easing the monthly pain for borrowers, Goldman expects headline home prices to keep rising to record highs.