The US housing market may finally bottom out. At least that’s what Goldman Sachs claims.
Just two weeks after Goldman Sachs downgraded its outlook for the U.S. housing market to “Before it Gets Better,” the investment bank reversed course in a Jan. 23 paper titled “2023 Housing Outlook: Finding a Trough.”
Instead of US home prices falling 6.1% in 2023, which was their January 10 forecast, researchers at the investment bank now expect the nation’s home prices to fall just 2.6% at the end of 2023.
When US home prices bottom out this summer, national home prices will be about 6% below their June 2022 peak, according to Goldman Sachs. Goldman Sachs analysts had previously expected a top-down decline of near 10 percent.
“We expect the nation’s home prices to decline about 6% from their peak and stop declining by mid-year.” Regionally, we anticipate larger declines in the Pacific Coast and Southwest regions, where inventory growth was the largest on average, and more modest declines in the Mid-Atlantic and Midwest, which have maintained better affordability over recent years,” Goldman Sachs researchers wrote.
Why bother updating?Recent data from Goldman Sachs points to an increase in demand from home buyers.
“Home store sales appear to be on the rise. Home loan applications increased by 9% on average from January to October, and survey-based measures of purchase intent rebounded sharply,” Goldman Sachs researchers wrote.
To have a better idea of both national and regional home prices, Fortune asked Goldman Sachs to provide us with your full forecast.
Unlike KPMG, Goldman Sachs does not expect a double-digit house price correction. According to the investment bank, there are three reasons why a sharper correction is not happening in this cycle.
“First, the rapid accumulation of nonperforming housing equity in recent years means that even if prices fell more sharply than expected, only a small fraction of mortgage borrowers would be underwater,” Goldman Sachs researchers wrote. “Second, more than 90% of mortgages are fixed rate, which means that rising interest rates will not lead to spikes in debt service costs for most homeowners.” Third, household balance sheets remain strong, leverage is low, and there is a significant amount of outstanding debt. “The COVID-19 pandemic has choked savings.”
According to Goldman Sachs, these three factors should prevent the potential “reverse defaults” that helped bring down the GFC. This previous correction was made after 2007 or 2008. 2007 Global Financial Crisis (GFC), when US house prices fell 26% between 2007 and 2012—four times the 6% peak-to-treble forecast by Goldman Sachs this time.
While Goldman Sachs expects the nation’s home prices to fall just 2.6% in 2023, not all markets are so lucky.
In 2023, Goldman Sachs expects double-digit home price declines in overheated markets such as Austin (-16%) and San Francisco (-14%).
%), San Diego (-13%), Phoenix (-13%), and Denver (-11%), as well as Seattle (-11%), Tampa (-11%), and Las Vegas (-11%).On the positive side, Goldman Sachs expects home prices to rise in markets such as Baltimore (0.5%) and Miami (0.8%).
“City-level trends are dictated by the tightrope walk between housing supply and demand.” “More affordable MSAs [metros] like Chicago and Philadelphia, where new mortgage payments only pay about a quarter of monthly income, should see smaller home prices fall than unaffordable metros, like many Western cities, some of which require three-quarters of their monthly income to pay their mortgage,” Goldman Sachs researchers wrote in a recent note.
On mortgage rates, Goldman Sachs says buyers shouldn’t expect much relief. By the end of 2023, the investment bank estimates that the average 30-year fixed mortgage interest rate will rise to 6.5 percent. The average 30-year fixed mortgage rate was 6.09% on Thursday.
Source: Fortune, Goldman Sachs