Published by The New York Post | January 24, 2023
As interest rates continue to skyrocket, home prices across the country have continued to plummet — and Goldman Sachs says the declines will only worsen and extend through 2023.
In a note to clients earlier this month, Goldman Sachs forecasted that four American cities in particular should gear up for a seismic decline compared to that of the 2008 housing crash.
San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California, will likely see boom-and-bust declines of more than 25%.
Such declines would rival those seen around 15 years ago during the Great Recession. Home prices across the United States fell around 27%, according to the S&P CoreLogic Case-Shiller index.
“Our 2023 revised forecast primarily reflects our view that interest rates will remain at elevated levels longer than currently priced in, with 10-year Treasury yields peaking in 2023 Q3. As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023 (representing a 30 bp increase from our prior expectation).”
Mortgage rates have spiked from 3% to 6% in 2022 — setting off the second significant home price correction of the post-WWII era.
“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely. That said, overheated housing markets in the Southwest and Pacific coast, such as San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA will likely grapple with peak-to-trough declines of over 25%, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021,” writes Goldman Sachs.
Goldman credits these cities as having the lowest prices in the coming year because they got too detached from fundamentals during the pandemic housing boom.
