In a note to its clients earlier this week, Goldman Sachs said it is expecting the ongoing plunge in US home prices to cool by the middle of 2023, as long-term mortgage rates continue to decline.
Goldman Sachs analysts Ronnie Walker and Vinay Viswanathan shared in a Monday note to clients that we may be out of the weeds as things continue to cool.
“The sharpest declines in the US housing market are now behind us,” Walker and Viswanathan said on Monday, The New York Post reported.
While Goldman Sachs said it's unlikely that interest rates will fall below 6% this year, especially with the average 30-year fixed mortgage rate peaking at 7.37% in November, a housing market turnaround could start to pick up in 2024.
“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,” a Goldman Sachs strategist shared with The Post earlier this month.
In their Monday note, Walker and Viswanathan shared that they “expect a peak-to-trough decline in national home prices of roughly 6% and for prices to stop declining around mid-year.”
The cities mentioned include San Diego, California; Austin, Texas; Phoenix, Arizona; and San Jose, California, all of which Goldman Sachs says will see decreases of more than 25%.
If true, the decline in prices would be similar to when home prices across the US saw a 27% dip during the Great Recession in 2008, according to the S&P CoreLogic Case-Shiller index.
Still, the economists wrote on Monday that they “suspect that existing home sales could decline slightly further, but will likely bottom in Q1.”
Goldman Sachs has also said they do not expect a nationwide increase in foreclosures this year, saying it would be “unlikely” with the current economy.
All this comes as the bank has predicted that there will not be a recession this year, assuming that the US gets through its current struggles with the nation’s debt ceiling, the chief economist at Goldman Sachs, Jan Hatzius, shared with CNN.
“We don’t expect a recession,” Hatzius told CNN, adding that their current prediction of a recession occurring is at 35%. “Our baseline is a soft-landing.”
Despite this, Wall Street has aligned on the chance of a recession being over 60%. Meanwhile, companies like Microsoft, Amazon, Spotify, Goldman Sachs, and several others in corporate America have announced layoffs in recent weeks.
While economists for the bank are predicting a soft landing, they also expect the labor market to cool gradually. Hatzius says he does not think the economy will see jobs being lost on a monthly basis at all this year.
As for the housing market and interest rates, Goldman Sachs shared that falling below 6% seems unlikely this year, especially with the average 30-year fixed mortgage rate peaking at 7.37% in November.
“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,” Goldman Sachs shared with the Post.
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