Four cities identified by Goldman Sachs as on track to record house price declines

Goldman Sachs has identified four cities that are on track for record falls in house prices.

The investment giant announced in a note to customers earlier this month that house prices would fall more this year than previously expected.

The bank said its housing market outlook has deteriorated and expects the S&P CoreLogic Case-Shiller US National Home Price NSA Index to fall 6.1 percent year-on-year through the fourth quarter of this year.

Previous estimates for the same period indicated a decline of 4.1%. Initiate.

The bank pointed out that housing prices peaked in June last year, meaning the full fall would be around 10 percent.

Goldman analysts Lotfi Karoui, Vinay Viswanathan and Ronnie Walker said house prices would start to rise again next year.

The reason for their negative outlook is that mortgage rates are likely to stay higher for longer than investors think.

“Our revised 2023 forecast primarily reflects our view that interest rates will remain elevated longer than currently priced in, with 10-year government bond yields peaking in Q3 2023. As a result, we are upgrading our 30-year forecast fixed rate of mortgage loans to 6.5% at the end of 2023 (which means an increase of 30 bp compared to our previous expectations) – the bank’s analysts wrote. “This path would result in a gradual decline in affordability, after a slight improvement over the last two months.”

Since the start of the pandemic, housing has become increasingly expensive in the face of rising house prices and mortgage rates, which has pushed up the monthly payment required to own a home.

Goldman strategists identified four Metropolitan Statistical Areas (MSAs) – cities – where they expect the median home price to drop below average.

The MSA covers larger areas surrounding the city that are important economically and in terms of the city’s population.

“Overheated Southwest and Pacific Coast residential markets such as the San Jose MSA (CA), Austin MSA (TX), Phoenix MSA (AZ) and San Diego MSA (CA) are likely to see steep declines above 25%, which is a local risk of higher mortgage arrears from 2022 or the end of 2021.” – they wrote.

Drops of this magnitude would be comparable to the price drops seen in the United States about 15 years ago.

During the recent housing crisis, house prices fell by about 27 percent, according to the S&P CoreLogic Case-Shiller US National Home Price NSA Index.

James Egan, a strategist at Morgan Stanley, wrote in a note this month that he expects home prices to drop by four percent this year due to lower demand.

Wells Fargo’s Charlie Dougherty and Patrick Barley had forecast falls of about 5.5 percent.

Jose Torres of Interactive Brokers suggested a 25 percent drop is possible, while KPMG’s Diane Swonk said a 20 percent drop could be in the cards.

She drew attention to the refrigeration technology sector, where large companies are eliminating thousands of jobs.

“Freezing tech jobs deepens declines; many lower priced markets saw astounding appreciation due to the higher salaries of technical workers they brought with them,” she said Initiate.

It is likely that the largest declines in house prices will occur in areas that have experienced the largest spikes in prices over the last few years.

In Austin, prices are more than 10 percent lower than at their peak, and in San Jose, San Diego and Phoenix, prices are down more than 6.5 percent.

Phoenix and San Diego are the two largest markets in the US in terms of the number of buyers who get concessions when closing deals, according to Redfin.

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