The US housing market can finally getting closer to the bottom. At least according to Goldman Sachs.
Just two weeks after Goldman Sachs downgraded the outlook for the US housing market in a paper titled “The worst before it gets better,” the investment bank reversed course on January 23 in a paper titled “2023 Housing Outlook: Finding a Trough.”
Instead of US home prices falling 6.1% in 2023, which was the prediction on January 10, researchers at the investment bank now expect national home prices to end 2023 down just 2.6%.
As U.S. home prices fall this summer, Goldman Sachs said national home prices will fall about 6% from their peak in June 2022. Previously, Goldman Sachs researchers had expected a peak decline of 10%.
“We expect a peak decline in national home prices of approximately 6% and prices to stop falling by mid-year. On a regional basis, we project a larger decline in the Pacific Coast and Southwest regions—which have seen the largest increases in average inventory -and to a lesser extent in the Mid-Atlantic and Midwest – which have maintained greater affordability over the past few years. ,” Goldman Sachs researchers wrote.
Why is the revision up? New data, Goldman Sachs said, shows an uptick in homebuyer demand.
“Home sales appear to be higher. Mortgage purchase applications averaged 9% above the October trough so far in January and survey-based purchase measures have recovered,” wrote Goldman Sachs researchers.
To get a better idea of national and regional house prices, fortune asked Goldman Sachs to provide us with a complete forecast.
Let’s have a look.
Unlike KPMG, Goldman Sachs does not expect a second house price correction. The investment bank said there are three reasons why a steeper correction is unlikely to happen this cycle.
“First, the unsustainable build-up of home equity over the past few years means that even if prices fall faster than expected, only a small portion of mortgage borrowers are underwater,” Goldman Sachs researchers wrote. “Secondly, more than 90% of outstanding mortgages are fixed-rate, which means that interest rate increases will not lead to an increase in debt service costs for most homeowners. And thirdly, household balance sheets remain strong, with a low aggregate impact and still plenty of savings. pent-up from the COVID-19 pandemic.”
These three factors, said Goldman Sachs, should prevent the potential “for cascading defaults that contribute to the post-GFC withdrawal.” The previous correction—after the global financial crisis (GFC) of 2007/2008, which caused US house prices to fall 26% between 2007 and 2012—was four times larger than the peak decline of 6% predicted by Goldman Sachs at this time. .
While Goldman Sachs only expects national home prices to fall 2.6% in 2023, not every market will be so lucky.
In 2023, Goldman Sachs expects a double decline in home prices in hot markets like Austin (-16%), San Francisco (-14%), San Diego (-13%), Phoenix (-13%), Denver (- 11). %), Seattle (-11%), Tampa (-11%), and Las Vegas (-11%). On the positive side, Goldman Sachs expects home prices to rise in markets like Baltimore (+0.5%) and Miami (+0.8%).
“Metro-level trends will be dictated by the tug-of-war between housing demand and supply. MSAs [metros] with stronger affordability like Chicago and Philadelphia—whose new mortgage payments only cost about a quarter of their monthly income—should see lower home prices than metros with less affordability like cities in the West—some of which are seeing higher mortgage payments claiming three-quarters of their monthly income,” Goldman Sachs researchers wrote in their latest note.
On the mortgage rate front, Goldman Sachs said buyers are not expecting any relief. By the end of 2023, the investment bank expects the average 30-year fixed mortgage rate to return to 6.5%. As of Thursday, the average 30-year fixed mortgage rate was at 6.09%.
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