The housing market in the United States has been a rollercoaster ride in recent years, with unpredictable shifts that have left homeowners and buyers alike uncertain about what to expect. The latest forecast from Goldman Sachs is no exception, predicting a significant decline in home prices in some of the biggest cities in the country.
According to a recent note to clients, Goldman Sachs analysts predict that by the end of 2024, home prices will plunge by 19% in Austin, 16% in Phoenix, 15% in San Francisco, and 12% in Seattle. The reason for this sharp decline in home prices is due to an oversupply of housing in these metropolitan areas, which has overwhelmed demand.
“While overall levels of housing inventory remain tighter than pre-pandemic levels, some vulnerable metropolitan areas have seen supply increase rapidly. Unsurprisingly, our home price appreciation forecasts have been most negative for geographies where supply is starting to overwhelm demand,” wrote Lotfi Karoui, Vinay Viswanathan, and Ronnie Walker, the authors of the note.
The report has sparked concern among homeowners in these areas, who are understandably worried about what the future holds for their investments. However, the analysts at Goldman Sachs emphasize that the anticipated decline in housing prices in these metropolitan areas is not reflective of a broader trend in the housing market.
In particular, the analysts note that San Francisco and Austin are home to major tech firms, including Amazon, Apple, Google, and Facebook, that has been at the forefront of industry-wide layoffs. The oversupply of housing in these areas is primarily due to local challenges, including poor levels of affordability, pandemic-related distortions, and a high concentration of employment in the technology industry.
The report from Goldman Sachs is not the first to predict a decline in the housing market. In an earlier note, the bank suggested that home prices nationwide could fall around 6% from their peak before bottoming out sometime in the next six months as a result of higher mortgage rates.
“The sharpest declines for the U.S. housing market are now behind us,” the strategists, led by Goldman chief economist Jan Hatzius, said in the January note.
The housing market has been sensitive to changes in interest rates, and the Federal Reserve’s aggressive campaign to tighten policy and slow the economy has had a significant impact. Policymakers have already lifted the benchmark federal funds rate eight consecutive times and have signaled their intention to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.
Mortgage rates have fallen from their peak of 7.08% in November but have recently reversed that trend and started to march higher amid interest rate-hike fears. The average rate for a 30-year fixed mortgage climbed to 6.65% this week, according to data from mortgage lender Freddie Mac.
That remains significantly higher than just one year ago when rates hovered around 3.76%. This rise in mortgage rates has contributed to the decline in the housing market, as it makes buying a home less affordable for many Americans.
Despite the concerns raised by the report from Goldman Sachs, other economists have predicted even steeper declines in the housing market. Ian Shepherdson, the chief economist at Pantheon Macroeconomics, warned that home prices could tumble as much as 20% from their peak.
It’s clear that the housing market is in a state of flux, with many different factors contributing to the uncertainty. However, there are also some positive signs on the horizon that may help to stabilize the market in the coming years.
For example, the Biden administration has proposed a $15,000 tax credit for first-time homebuyers, which could make it easier for many Americans to afford a home. This proposal is part of a broader plan to tackle the affordable housing crisis in the United States, which has become a major issue in recent years.
In addition to the proposed tax credit, the administration has also unveiled plans to invest $318 billion in affordable housing over the next ten years. This investment will help to create new affordable housing units, rehabilitate existing units, and provide rental assistance to families in need.
These initiatives could help to boost demand for housing in some of the metropolitan areas that are currently oversupplied. However, it’s important to note that the impact of these policies will take time to be felt in the housing market. In the short term, the market is likely to remain volatile, with unpredictable shifts in supply and demand.
Another factor that could impact the housing market in the coming years is the ongoing COVID-19 pandemic. The pandemic has had a major impact on the economy, with millions of Americans losing their jobs and struggling to make ends meet. Many homeowners have been forced to sell their homes or face foreclosure as a result.
However, the rollout of vaccines and the easing of restrictions in many parts of the country could help to boost the economy and stabilize the housing market. If the pandemic is brought under control and the economy begins to recover, we could see an increase in demand for housing in many parts of the country.
Ultimately, the housing market is a complex and constantly evolving ecosystem that is influenced by a wide range of factors. While the latest forecast from Goldman Sachs may be concerning for homeowners in some metropolitan areas, it’s important to remember that this is just one prediction among many.
Other economists have predicted different outcomes for the housing market, and it’s impossible to know for sure what the future holds. However, by staying informed about the latest trends and developments in the market, homeowners and buyers can make informed decisions about their investments and take steps to protect themselves against potential risks.
In conclusion, the housing market in the United States is currently in a state of flux, with unpredictable shifts in supply and demand. The latest forecast from Goldman Sachs predicts a significant decline in home prices in some of the biggest cities in the country, due to an oversupply of housing that has overwhelmed demand.
However, this is just one prediction among many, and it’s important to consider a wide range of factors when assessing the state of the housing market. Initiatives like the proposed tax credit for first-time homebuyers and the investment in affordable housing could help to boost demand in some areas, while the ongoing COVID-19 pandemic could continue to impact the market in unpredictable ways.
By staying informed about the latest trends and developments in the market, homeowners and buyers can make informed decisions about their investments and take steps to protect themselves against potential risks.
More Insight on the Global & US Housing Market Forecast
According to Goldman Sachs Research, higher mortgage rates are causing housing markets around the world to slow down. After a surge in housing activity during the pandemic, home sales have pulled back sharply in the second half of 2022 due to the spike in mortgage rates enacted by central banks in most developed market economies. This contraction in housing starts, sales, and prices has persisted in 2023 and is expected to continue throughout the year.
The report suggests that the impact of higher borrowing costs for homebuyers has yet to be fully felt and that the global housing market may not have reached its bottom. The GS Research team estimates that each 100-basis-point rise in mortgage rates leads to a 6% decline in residential fixed investment after three or four quarters and a 2.5% drop in house prices after 10 quarters.
The timing of the impact varies across countries due to differences in mortgage markets. Countries with higher shares of fixed-rate mortgages tend to experience delayed rate impacts. Since mortgage rates have only recently peaked in most countries and could be headed higher still, the global housing market may not have found its bottom yet.
The report predicts significant peak-to-trough home price declines in developed markets where housing affordability plunged following the pandemic, including New Zealand (-19%), Canada (-19%), Sweden (-17%), and Australia (-15%). Developed markets that will likely see flat or moderate declines include Italy (-2% peak to trough), France (-4%), and Switzerland (-6%), reflecting a slower increase in mortgage rates and “less stretched” affordability.
The US housing market is expected to see “relatively tame” home price declines of around 5%, owing mainly to its extremely low vacancy rate.
Overall, the authors of the report believe that the housing declines around the globe are going “according to plan.” The strong housing market response to rate hikes has helped slow overall growth below trend without causing a recession or triggering a rise in delinquencies in most major economies. They anticipate that this pattern will continue.
Country
Peak-to-Trough Home Price Decline
United States
-5%
New Zealand
-19%
Canada
-19%
Sweden
-17%
Australia
-15%
Switzerland
-6%
France
-4%
Italy
-2%
References/Sources:
https://www.goldmansachs.com/insights/pages/why-the-global-housing-market-has-further-to-slide.html
https://www.foxbusiness.com/economy/home-prices-could-face-double-digit-drop-cities-goldman-sachs-warns
https://news.yahoo.com/these-four-cities-could-see-double-digit-home-price-drops-goldman-sachs-204112309.html
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