Goldman Sachs expects home values to worsen through 2023 amid skyrocketing interest rates and falling home prices.
The firm wrote to clients earlier this month that it predicts four US cities will see the most catastrophic declines, drawing comparisons to the 2008 housing crash.
San Jose, Calif.; San Diego, California; Austin, Texas; and Phoenix, Arizona will likely see notable increases before drastic declines of more than 25%.
These declines would be similar to those seen during the Great Recession of 2008. US home prices fell about 27% at the time, according to the S&P CoreLogic Case-Shiller Index.
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“Our revised 2023 forecast primarily reflects our view that interest rates will remain elevated for longer than current value, with 10-year Treasury yields peaking in the third quarter of 2023,” the strategists wrote. from Goldman Sachs, according to the New York Post. “As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% by the end of 2023 (representing a 30bp increase from our previous expectation).”
In 2022, mortgage rates increased from 3% to 6%.
“This [national] The decline should be small enough to avoid widespread mortgage credit stress, with a sharp increase in foreclosures across the country looking unlikely,” Goldman Sachs wrote. , Phoenix MSA and San Diego MSA will likely deal with peak and trough declines of more than 25%, presenting higher localized delinquency risk for mortgages originated in 2022 or late 2021.”
The bank says these cities will suffer from the lowest prices this year because they diverged too far from fundamentals during the housing boom from the COVID-19 pandemic.
Goldman Sachs also forecasts that many markets in the Northeast, Southeast and Midwest could see smaller corrections.
Home prices are expected to decline slightly in New York City (-0.3%) and Chicago (-1.8%), while Baltimore (+0.5%) and Miami (+0.8 %) will see higher prices, the firm said.
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“Assuming the economy stays on the path to a soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls back to 6.15% by the end of 2024, home price growth will likely slow down. from depreciation to below-trend appreciation in 2024,” Goldman Sachs wrote.
The average 30-year fixed mortgage rate was at 7.37% at its peak in November.