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Goldman Sachs says 4 US cities will suffer a 2008 crash in home values

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In light of continuous soaring interest rates and falling property values, Goldman Sachs forecasts that home values will continue to drop until the end of 2023.

A analysis produced by the company at the beginning of this month forecasted that four U.S. cities will see the most devastating declines, comparing the scenario to the housing crash of 2008.

The cities of San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona are anticipated to witness notable rises before to experiencing more than a 25% decline.

This would be comparable to the decreases observed during the 2008 Great Recession. According to the S&P CoreLogic Case-Shiller index, house values in the United States plummeted by around 27% during the time.

“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,” Sachs said, the New York Post reported. “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).”

In 2022, the mortgage rate increased from 3% to 6%.

“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely,” Goldman Sachs predicted. “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.”

Due to their detachment from fundamental economics during the COVID-19 housing bubble, this year will witness the lowest prices in these cities.

In addition, Goldman Sachs predicts that several markets in the Northeast, Southeast, Midwest, and West may face less severe corrections.

According to the business, property prices will decrease in New York City (-0.3%) and Chicago (-1.8%), but increase in Baltimore (+0.5%) and Miami (+0.8%).

“Assuming the economy remains on the path to a soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls back to 6.15% by year-end 2024, home price growth will likely shift from depreciation to below-trend appreciation in 2024,” the report added.

In November, the average 30-year fixed mortgage rate was 7.37 percent.

Sach’s predicts that despite the outlook for these four cities, the nation as a whole will not experience a recession, contrary to what the majority of the people believes.

More on this story via The Republic Brief:

The econ firm reports “The threat of a U.S. recession remains alive in 2023. The consensus estimate on the probability of a meaningful downturn in the American economy in the next 12 months is at 65%, according to Goldman Sachs Research. But our own economic analysis rates that probability much lower, at 35%. David Mericle, our chief U.S. economist, and Alec Phillips, our chief U.S. political economist, elaborate on that lower risk and answer some of the big questions facing the U.S. economy in 2023 below:”

Why might the U.S. economy avoid recession in 2023? CONTINUE READING…

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