Goldman Sachs says Miami will exit home price correction in 2023 while ‘overheated’ housing markets like Austin suffer

One side, US home prices fell 2.4% between June and October is small compared with the 26% drop in home prices nationally due to the housing crisis from the 2007 peak to the 2012 bottom. On the other hand, house price adjustment is taking place there may be a lot of gas left in the tank.

Look no further than a Goldman book The article came out last week with the headline “Getting Worse Before Getting Better.” Researchers at the investment bank argue in the paper that National house price adjustment will continue until 2023.

“We are lowering our forecast for annual depreciation in the Case-Shiller Home Price Index for 2023 to -6.1% from -4.1% previously. This means that home prices in the United States will fall from peak to trough by about 10% through the end of the year from June 2022, the Goldman Sachs researchers wrote.

Through October, Case-Shiller national home price index lags registered a -2.4% reduction in home prices nationwide. However, researchers at the investment bank estimate that when we get to the November and December numbers, we’ll see a -4% drop in home prices nationally. That means we may be halfway to Goldman Sachs’ estimated 10% peak-to-trough drop.

Nationally, a 10% peak-to-trough drop in U.S. home prices—which rose 41% between March 2020 and June 2022—won’t do too much damage, Goldman Sachs said nationally. in finance, Goldman Sachs said. However, the company says some regional markets won’t be so lucky.

“This [national] the decline should be small enough to avoid widespread mortgage credit stress, with a sharp increase in foreclosures across the country seeming unlikely. That said, overheated housing markets in the Southwest and Pacific coast, such as the San Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA are likely to struggle with peak-to-peak declines. bottom of more than 25%, leading to a higher local risk of overdue debt than Goldman Sachs wrote.

In 2023, Goldman Sachs predicts double-digit home price declines in major markets such as Austin (-15.6), San Francisco (-13.7%), San Diego (-13.4%), Phoenix ( -12.9%), Denver (-11.4%). ), Seattle (-11.2%), Tampa (-11.2%) and Las Vegas (-11.1%). Those markets are also where home price adjustments hit the hardest in the second half of 2022. Indeed, up until November. Austin down 10.4% from the highest house price of 2022.

Why does Goldman Sachs expect? adjustment to deliver the biggest blow to markets like San Diego and Austin? The investment bank says those markets are “overheating,” which implies that housing prices are up too detached from the fundamentals transparent housing boom due to pandemic. Being detached from the fundamentals creates a particularly tough punch when mortgage interest rate spike as they did in 2022.

Going forward, Goldman Sachs thinks many of the Northeast, Southeast, and Midwest markets could see milder corrections (if there are any). In 2023, the investment bank expects home prices to barely fall in places like Chicago (-1.8%) and New York (-0.3%), while their forecast comes in at a price. homes increased in Baltimore (+0.5%) and Miami (+0.8%). ) in 2023.

“Our revised 2023 forecast primarily reflects our view that interest rates will remain high for longer than current valuations, with 10-year Treasury yields peaking in Q3 2023. As a result, we are raising our 30-year fixed mortgage forecast to 6.5% by the end of 2023 (up 30 basis points from our previous expectation),” the Goldman Sachs researchers wrote. “This path will cause affordability to deteriorate further, after a slight improvement over the past two months.”

While the investment bank predicts a 6.1 percent drop in US home prices in 2023, it doesn’t expect a recession as long as the previous boom: In 2024, Goldman Sachs predicts housing prices. The US will gain 1% even as markets like Austin and Phoenix continue to rise. fall.

“Assuming the economy is still on a gentle landing, a recession is avoided, and the 30-year fixed mortgage rate falls back to 6.15% by the end of 2024, home price growth is likely to shift away from amortization to bullish below trend in 2024,” Goldman Sachs wrote.

Whether it’s Goldman Sachs’ forecast or Moody’s Outlook, the biggest wildcard for any home price forecasting model is still mortgage rates. (You can find the latest home price forecasts from the nation’s top 27 real estate research firms here.)

Peak in November, 30-year average fixed mortgage rate as measured by the Daily Mortgage Rate at 7.37%. However, following positive news on inflation over the past few months, financial conditions have eased and the 30-year average fixed mortgage rate has dropped to 6.09%. If mortgage rates continue to fall, companies like Goldman Sachs may have to start upgrading their home price outlook.

Looking for more housing data? follow me on Twitter in @NewsLambert.

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