Real Estates

Here’s when the decline in US real estate prices could end: Goldman Sachs

The ongoing decline in U.S. housing prices may be coming to an end, analysts at Goldman Sachs said in a note to clients this week.

Long-term mortgage rates cooled by nearly a full percentage point after rising above 7% as the Federal Reserve made a series of rate hikes last year. The trend should improve housing affordability and bring prices down to a threshold, according to the Wall Street Bank.

“The biggest declines in the U.S. housing market are now behind us,” Goldman analysts Ronnie Walker and Vinai Visvanathan said in a client note on Monday.

The strategists added that they “expect a peak-to-trough drop in national home prices of roughly 6% and for prices to stop falling around mid-year.”

Overheated housing markets on the West Coast and Southwest are likely to experience “larger declines” in home prices compared to national rates due to a glut of inventory, the note said. Meanwhile, markets located in the Mid-Atlantic and Midwest regions will see “more decline.”

Homes in San Diego
San Diego is one of the US cities expected to experience the worst drop in prices.
Bloomberg via Getty Images

Rising mortgage rates have caused a major correction in the US housing market in recent months, sending potential buyers on the sidelines and prompting sellers to rethink their plans or lower their asking prices to attract interest.

Other firms, including Pantheon Macroeconomics, predict larger declines in housing prices before the threshold is reached. In December, Pantheon’s Ian Shepherdson said prices could fall as much as 20% during a multi-year market correction.

Goldman noted some promising recent trends in the market. After falling to a 25-year low last year, mortgage applications rose by an average of 9% compared to October’s low.

House for sale
Goldman Sachs expects the decline in prices to end by the middle of the year.
Bloomberg via Getty Images

“We suspect that existing home sales may decline a little more, but are likely to bottom out in Q1,” the analysts wrote.

Still, homeowners in many markets — especially in so-called “pandemic megacities” that have benefited from relaxed fiscal policy during the COVID-19 crisis — can expect more financial pain before the bottom is reached.

As The Post reported, Goldman Sachs predicted earlier this month that four cities — San Jose, Calif.; Austin, Texas; Phoenix, Arizona; and San Diego, California — will see prices drop 25% from recent highs. Those declines would equal the collapse it experienced during the 2008 housing crash.

House for sale
Goldman noted the recent cooling in mortgage rates.
Bloomberg via Getty Images

“This [national] the decline should be small enough to avoid major mortgage stress, with a sharp increase in foreclosures across the country looking unlikely,” the bank said.

“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 mortgage delinquencies occurred in 2022 or late 2021

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