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

Goldman Sachs expects home values ​​to deteriorate through 2023 as high interest rates and falling home prices continue.

The firm wrote to clients this month that it expects four US cities to suffer the most catastrophic declines since the 2008 housing crash.

San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona are likely to see significant increases before plummeting by more than 25%.

These declines would be similar to those seen during the Great Recession of 2008. Home prices across the U.S. fell about 27% during that time, according to the S&P CoreLogic Case-Shiller index.

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“Our revised 2023 forecast primarily reflects our view that interest rates will remain elevated longer than currently projected, with the 10-year Treasury yield peaking in the third quarter of 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% at the end of 2023 (a 30bp increase from our previous forecast).”

In 2022, mortgage rates rose from 3% to 6%.

“This [national] the decline should be small enough to avoid widespread mortgage stress, as a sharp increase in foreclosures across the country appears unlikely,” Goldman Sachs wrote. “This means that housing markets in the Southwest and Pacific Coast, such as the San Jose MSA, the Austin MSA , have overheated. , the Phoenix MSA and the San Diego MSA are likely to struggle with peak-to-trough declines of more than 25%, creating a local risk that mortgages originated in 2022 or late 2021 will increase.

The bank says these cities will have the lowest prices this year because they diverged too much from fundamentals during the housing boom caused by the COVID-19 pandemic.

Goldman Sachs also predicts that many markets in the Northeast, Southeast and Midwest could experience milder corrections.

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Home prices are expected to decline slightly in New York (-0.3%) and Chicago (-1.8%), while prices in Baltimore (+0.5%) and Miami (+0.8%) will be higher, the firm said.

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Miami

Home prices are expected to decline slightly in New York and Chicago, while prices in Baltimore and Miami (pictured) are expected to be higher. (iStock/iStock)

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“Assuming the economy continues its soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls to 6.15% by the end of 2024, home price growth is likely to shift from depreciation to below- trend. 2024,” wrote Goldman Sachs.

The average 30-year fixed mortgage rate was 7.37% at its peak in November.

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