Real Estates

Goldman Sachs Sees Crashing Home Values ​​in These 4 Cities

As interest rates continue to rise, home prices across the country have continued to fall — and Goldman Sachs says the declines will only worsen and extend into 2023.

In a note to clients earlier this month, Goldman Sachs predicted that four US cities in particular should prepare for a seismic downturn comparable to that of the 2008 housing crash.

San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California is likely to see a decline of more than 25%.

Such declines would rival those seen about 15 years ago during the Great Recession. Home prices across the United States fell about 27%, according to the S&P CoreLogic Case-Shiller index.

“Our revised 2023 forecast primarily reflects our view that interest rates will remain at elevated levels longer than currently estimated, with 10-year Treasury yields peaking in Q3 2023. As a result, we are raising our forecast for the 30-year fixed mortgage at 6.5% for the end of 2023 (representing a 30bp increase from our previous expectations),” strategists say.

Mortgage rates rose from 3% to 6% in 2022, leading to the second major home price correction in the post-World War II era.

View of the studio.
View of the studio.

“This [national] the decline should be small enough to avoid major mortgage stress, with a sharp increase in foreclosures across the country looking unlikely. However, overheated housing markets in the Southwest and Pacific Coast, such as San Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA, will likely struggle with peak-to-trough declines of over 25%, posing a localized risk of higher delinquencies for mortgages originated in 2022 or at the end of 2021,” writes Goldman Sachs.

Goldman believes that these cities had the lowest prices in the next year because they got too detached from the fundamentals during the pandemic housing boom.

Meanwhile, Goldman predicts that many markets in the Northeast, Southeast and Midwest could experience milder corrections.

In 2023, the investment bank expects home prices to barely fall in cities like New York (-0.3%) and Chicago (-1.8%), while predicting higher prices in Baltimore (+0.5%) and Miami (+0.8%).

“Assuming the economy remains on a soft landing path, avoiding a recession, and the 30-year fixed mortgage rate falls to 6.15% by the end of 2024, home price growth is likely to shift from below-trend depreciation to appreciation in 2024.” “, adds Goldman Sachs.

At its peak in November, the average 30-year fixed mortgage was 7.37%.

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