Goldman Sachs expects home values to deteriorate during 2023 amid continued rising interest rates and declining housing prices.
The firm wrote to clients earlier this month that four cities in the United States will face the most catastrophic collapse, drawing comparisons to the 2008 housing crash.
San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona, will likely see significant increases before massive decreases of more than 25%.
These declines would be similar to those seen during the Great Recession in 2008. Home prices across the US fell by about 27% at the time, according to the S&P CoreLogic Case-Shiller index.
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“Our revised forecast for 2023 primarily reflects our view that interest rates will remain at high levels longer than currently priced, with 10-year Treasury yields peaking in Q3 2023,” Goldman Sachs strategists wrote, 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 (which represents a 30 bp 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, and a large increase in foreclosures across the country seems unlikely,” wrote Goldman Sachs. , the Phoenix MSA, and San Diego MSA are likely will face peak-to-trough declines of more than 25%, creating a localized risk of higher delinquencies for mortgages originated in 2022 or late 2021.”
The bank says these cities will suffer the lowest prices this year because they were too cut off from the bottom line during the COVID-19 pandemic housing boom.
Goldman Sachs also forecasts that many Northeast, Southeast and Midwest markets could see milder corrections.
Home prices are expected to decrease 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 that the economy remains on the path to a soft landing, avoiding a recession, and that the fixed 30-year mortgage rate falls back to 6.15% by the end of 2024, house price growth is likely to shift from depreciation to appreciation below the trend i. 2024,” wrote Goldman Sachs.
The average 30-year fixed mortgage rate peaked at 7.37% in November.