The continued fall in U.S. home prices may be coming to an end, Goldman Sachs analysts said in a note to clients this week.
Long-term mortgage rates fell almost a percentage point after jumping above 7% as the Federal Reserve decreed a series of interest rate hikes last year. According to the Wall Street Bank, this trend should improve housing affordability and cause the decline in prices to bottom out.
“The biggest declines in the U.S. housing market are now behind us,” Goldman analysts Ronnie Walker and Vinay Viswanathan said in a client note released Monday.
The strategists added that they “expect a peak-to-trough decline in national home prices of about 6% and prices to stop falling around the middle of the year.”
Overheated housing markets on the West Coast and Southwest will likely see “larger declines” in home prices relative to the national rate due to a glut of inventory, the memo said. Meanwhile, markets in the mid-Atlantic and Midwest regions will experience “more declines.”
Soaring mortgage rates have caused a major correction in the US housing market in recent months, driving away potential buyers and forcing sellers to rethink their plans or cut their asking prices to attract interest.
Other firms, including Pantheon Macroeconomics, forecast deeper home price declines before a bottom is reached. In December, Pantheon’s Ian Shepherdson said prices could fall by up to 20% in a multi-year market correction.
Goldman noted some promising recent trends in the market. After plunging last year to a 25-year low, mortgage purchase applications are up an average of 9% from their October low.
“We suspect that existing home sales could decline slightly further, but will likely bottom out in the first quarter,” the analysts wrote.
Still, owners of many markets — especially so-called “pandemic boomtowns” that have benefited from loose fiscal policy during the COVID-19 crisis — can expect more financial pain before a bottom hits. is reached.
As The Post reported, Goldman Sachs predicted earlier this month that four cities – San Jose, Calif.; Austin, TX; Phoenix, Arizona; and San Diego, Calif. — will see prices drop 25% from recent highs. These declines would be on par with the collapse experienced during the housing crash of 2008.
“That [national] the decline should be small enough to avoid widespread stress on mortgage lending, with a sharp increase in nationwide foreclosures looking unlikely,” the bank said.
“That said, overheated Southwest Coast and Pacific real estate markets, such as San Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA, will likely be struggling with declines of more than 25%, presenting a higher localized risk. defaults for mortgages originated in 2022 or late 2021.”