On the one hand, the 2.4% decline in US home prices between June and October is small compared to the 26% national price decline in the housing crash from the top of 2007 to 2012. correction may leave a large amount of gas in the tank.
Take another look at a Goldman Sachs paper published last week titled “Getting Worse Before It Gets Better.” Investment bank researchers argue in an article that the correction in national home prices will continue through 2023.
“We are lowering our 2023 forecast for annual depreciation in the Case-Shiller home price index to -6.1%, from -4.1% previously. This would represent a peak decline in US home prices of approximately 10% by the end of this year, starting in June 2022,” Goldman Sachs researchers wrote.
During October, the Case-Shiller National Home Price Index recorded a -2.4% decline in national home prices. However, the investment bank’s researchers estimate that when we get the figures for November and December, we’ll see that national home prices have already fallen -4%. That means we may already be halfway to Goldman Sachs’ estimated 10% peak decline.
Nationally, a 10% peak drop in U.S. home prices, which rose 41% between March 2020 and June 2022, shouldn’t cause too much financial damage, 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 stress, with a sharp rise in foreclosures across the country looking 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 face peak declines of more than 25%. , which would present a localized risk of greater violations. For mortgage loans originated in 2022 or at the end of 2021,” writes Goldman Sachs.
In 2023, Goldman Sachs expects 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 the home price correction will hit the hardest in the second half of 2022. Indeed, through November, Austin is down 10.4% from its 2022 home price peak.
Why does Goldman Sachs expect the correction to hit markets like San Diego and Austin the hardest? The investment bank says those markets are “overheated,” suggesting that home price growth there became too disconnected from fundamentals during the housing boom. Being cut off from the fundamentals hits especially hard when mortgage rates rise, as they will in 2022.
Going forward, Goldman Sachs believes many markets in the Northeast, Southeast and Midwest could see milder corrections (if any at all). In 2023, the investment bank expects home prices to barely decline in places like Chicago (-1.8%) and New York (-0.3%), while it predicts home prices will rise in Baltimore (+0.5%). and in Miami (+0.8%). ) in 2023
“Our revised forecast for 2023 largely reflects our view that interest rates will remain at elevated levels longer than prices are currently, with the 10-year Treasury yield peaking in the third quarter of 2023. As a result, we are raising our forecast for the 30-year fixed mortgage. interest rate to 6.5% by the end of 2023 (which represents a 30bp increase from our previous expectation),” Goldman Sachs researchers wrote. “This road will lead to a gradual deterioration of accessibility after a slight improvement over the past two months.”
While the investment bank expects U.S. home prices to fall 6.1% in 2023, it doesn’t expect a prolonged slump like the previous recession; In 2024, Goldman Sachs expects U.S. home prices to rise 1%, even as markets like Austin and Phoenix continue to grow. In autumn.
“Assuming 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 is likely to move from depreciation to a downtrend. 2024,” writes Goldman Sachs.
Whether it’s a Goldman Sachs forecast or a Moody’s forecast, the biggest input to any house price forecasting model remains mortgage rates. (You can find the latest home price forecasts from 27 of the nation’s leading real estate research firms here.)
At the November peak, the average 30-year fixed mortgage rate, measured by the Mortgage Rate Daily, was 7.37%. However, after the positive inflation news of the past few months, financial conditions have softened and the average 30-year fixed mortgage rate has fallen to 6.09%. If mortgage rates continue to fall, firms like Goldman Sachs may begin to upgrade their home price forecasts.
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