Home prices will drop more than 25% from record highs in ‘overheated’ markets, Goldman says

Goldman Sachs credit researchers now expect home prices in several “overheated” metro areas to fall more than 25% from peak levels.

The metro areas included in their forecast were San Jose, Austin, Phoenix and San Diego, according to a new home price outlook from a Goldman research team led by Lotfi Karoui.

Some of the markets at risk for the biggest price declines this year (see chart) have already seen a depreciation of at least 10% in house price growth, according to the Goldman team.

Austin, San Francisco, San Diego and Phoenix will see the biggest home price declines in 2023.

Zillow, Goldman Sachs Global Investment Research

While steep price declines could present “localized risk of higher late payments for mortgages originated in 2022 or late 2021,” the declines are unlikely to be such a big threat everywhere.

Nationally, the Goldman team expects home prices to fall about 10% this year from June 2022 levels, following their estimated decline of about 4% in the second half of the year. ‘last year.

“This decline should be small enough to avoid widespread stress on mortgage lending, with a sharp increase in nationwide foreclosures looking unlikely,” the team wrote.

Housing activity in the United States has fallen off a cliff since the Federal Reserve began raising rates in March to tame high inflation. However, house prices have also increased by 40% since March 2020, according to Deutsche Bank.

Goldman’s new home price forecast was based on the expectation that interest rates will stay high for longer. The team said its year-end forecast for the 30-year fixed-rate mortgage had been revised up 30 basis points to 6.5%, but they expect it to declines to 6.15% in 2024.

“This trajectory would lead to a gradual deterioration in affordability, following a slight improvement over the past two months,” the team said, with house prices likely to move to a 1% appreciation in 2024 if the economy America avoids a recession.

U.S. stocks rose for a second straight session on Wednesday, a day before a consumer inflation update is expected to show a monthly decline in the annual rate to 6.5% from a high of 9.1% this summer. The Dow Jones Industrial Average DJIA,
+0.80%
gained 0.8% on Wednesday, the S&P 500 SPX index,
+1.28%
rose 1.3% and the Nasdaq Composite Index COMP,
+1.76%
advanced by 1.8%.

Read: Why Thursday’s US CPI report could kill hopes of melting inflation in the stock market

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