Goldman Sachs expects home values to deteriorate through 2023 amid continued rising interest rates and falling house prices.
The company wrote to clients earlier this month that it predicted four U.S. cities would suffer the most catastrophic declines, drawing comparisons to the housing crash of 2008.
San Jose, California; San Diego, California; Austin, TX; 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. Home prices in the United States fell about 27% at the time, according to the S&P CoreLogic Case-Shiller Index.
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“Our revised guidance for 2023 primarily reflects our view that interest rates will remain at elevated levels for longer than currently expected, with 10-year Treasury yields peaking in the third quarter of 2023,” the strategists wrote. of 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% for the end of 2023 (representing a 30 basis point increase from our previous expectations).”
In 2022, mortgage rates jumped from 3% to 6%.
“That [national] The decline should be small enough to avoid widespread stress on mortgage lending, with a sharp rise in foreclosures nationwide looking unlikely,” Goldman Sachs wrote. , Phoenix MSA and San Diego MSA will likely face declines of more than 25%, presenting localized risk of higher delinquencies for mortgages issued in 2022 or late 2021.”
The bank says these cities will suffer the lowest prices this year because they strayed too far from fundamentals during the COVID-19 pandemic housing boom.
Goldman Sachs also predicts that many markets in the Northeast, Southeast and Midwest could experience milder corrections.
House prices are expected to decline slightly in New York (-0.3%) and Chicago (-1.8%), while Baltimore (+0.5%) and Miami (+0.8%) will see an increase prices, the firm said.
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“Assuming the economy stays on a soft landing path, avoiding a recession, and the 30-year fixed mortgage rate drops to 6.15% by the end of 2024, growth house prices will likely move from depreciating to below-trend appreciation in 2024,” Goldman Sachs wrote.
The average 30-year fixed mortgage rate was 7.37% at its peak in November.