Goldman Sachs expects home prices to deteriorate through 2023 amid continued skyrocketing interest rates and falling home prices.
The company wrote to clients earlier this month that it predicts four U.S. cities will experience the most catastrophic declines, drawing comparisons to the housing crash of 2008.
San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona, are likely to see noticeable increases before drastic drops of more than 25%.
These declines would be similar to those experienced during the Great Recession in 2008. According to the S&P CoreLogic Case-Shiller index, US home prices fell about 27% at the time.
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“Our revised 2023 forecast primarily reflects our view that interest rates will remain at high levels for longer than currently priced in, with 10-year Treasury yields set to peak in the third quarter of 2023,” they wrote. Goldman Sachs strategists according to the New York Post. “As a result, we are raising our 30-year fixed mortgage rate forecast to 6.5% by the end of 2023 (an increase of 30 basis points from our previous expectation).”
In 2022, the mortgage interest rate will rise from 3% to 6%.
“This one [national] decline should be small enough to avoid a widespread mortgage crisis, with a sharp rise in foreclosures across the country looking unlikely,” Goldman Sachs wrote. Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA are likely to struggle with peak-to-trough declines of more than 25%, bringing local risk of higher delinquencies for mortgages that originated in 2022 or late 2021.”
The bank says these cities will experience the lowest prices this year because they have moved too far away from fundamentals during the COVID-19 pandemic.
Goldman Sachs also forecasts that many markets in the Northeast, Southeast and Midwest could see milder corrections.
House prices are expected to fall slightly in New York City (-0.3%) and Chicago (-1.8%), while Baltimore (+0.5%) and Miami (+0.8%) will see higher prices , the company said.
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Assuming the economy continues to move towards a soft landing, recession is avoided, and 30-year fixed mortgage rates fall to 6.15% by the end of 2024, house price growth is likely to shift from depreciation to below the trend rising value increases in 2024,” wrote Goldman Sachs.
The average 30-year mortgage rate peaked at 7.37% in November.