Goldman Sachs sees decline in home values ​​in these 4 cities

As interest rates continue to skyrocket, home prices across the country continue to decline — and Goldman Sachs says the decline will only get worse and extend through 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 the 2008 housing crash.

San Jose, California; Austin, Texas; Phoenix, Arizona; And San Diego, California could see a drop in movement and movement of over 25%.

This type of decline was seen during the Great Recession about 15 years ago. According to the S&P CoreLogic Case-Shiller index, home prices across the United States have declined by about 27%.

“Our revised 2023 forecast primarily reflects our view that interest rates will remain higher in the third quarter of 2023 with 10-year Treasury yields higher than currently priced. As a result, we are increasing our forecast for the 30-year fixed mortgage rate for the end of year 2023 to 6.5% (representing a 30 bp increase from our prior expectation),” the strategists say.

Mortgage rates are set to rise 3% to 6% in 2022 – setting up the second significant home price correction since World War II.

Take a look at the study.
Take a look at the study.

“it [national] Should the decline be small enough to avoid widespread mortgage lending stress, a sharp increase in foreclosures across the country seems unlikely. That said, peak-to-low declines of more than 25% are expected in hot housing markets in the Southwest and Pacific Coast, such as the San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA, which are local areas of high crime. introduces risk. for mortgages originating in late 2022 or 2021,” writes Goldman Sachs.

Goldman credits these cities as having the lowest prices in the coming year because they were so disconnected from fundamentals during the pandemic housing boom.

Meanwhile, Goldman predicts that many Northeast, Southeast and Midwest markets may see modest improvements.

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

“Assuming that 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 will likely be below depreciation.” The trend will turn into appreciation. 2024,” says Goldman Sachs.

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

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