On Wednesday, January 25, 2023, Goldman Sachs predicted a wave of price declines across the United States this year and into 2023. The bank says that four cities in particular – San Jose, Austin, Phoenix, and San Diego – should brace for more than 25% declines, rivaling the decline seen during the previous Great Recession.
Back in 2008, the U.S. housing market was decimated by the global financial crisis. According to the S&P CoreLogic Case-Shiller index, home prices across the country fell by an average of 27% at that time.
Now, Goldman Sachs reports that rising interest rates, which rose from 3% to 6% this year, set off the second significant home price correction of the post-WWII era. The Goldman Sachs report forecasts that 30-year fixed mortgage rates will remain elevated through 2023 and peak in the third quarter.
According to the bank, although a general reduction should be minimal enough to sidestep considerable mortgage credit anxiety, it is likely that these four cities will confront peak-to-trough decreases of over 25%. This increases the chance of elevated mortgage delinquencies created in 2022 or late 2021.
Goldman Sachs believes several Northeastern, Southeastern, and Midwestern areas could witness more moderate corrections between 2023 and 2024. It’s worth noting that some places such as Baltimore and Miami may observe light price inflations rather than declines.
Despite the current state of the economy, there is still reason to be optimistic. Provided that a recession can be averted and the trajectory maintains its course towards a soft landing, Goldman Sachs experts anticipate mortgage rates could potentially drop from their current levels back down to 6.15% by 2024 year-end, while residential property appreciation may likely transition from depreciation into below-trend growth.
The latest forecast from Goldman Sachs provides a stark reminder of the dangers posed by rising interest rates and provides an insight into how housing markets may respond in the coming year. With the average 30-year fixed mortgage rate sitting at 7.37% in November, it’s clear that homeowners across the country must be prepared for pain in the coming months.
Homebuyers should also be mindful of today’s warnings when making decisions about their home purchase. The pain felt in certain cities could spread more widely if economic conditions change and mortgage rates remain elevated through 2023.
Homeowners should consider all options available to them, including refinancing options and managing their finances to ensure that they are in the best position possible to weather this market volatility.
