Here’s When the US Home Price Slump Could End: Goldman Sachs

The ongoing slide in US home prices may be coming to an end, Goldman Sachs analysts said in a note to clients this week.

Long-term mortgage rates have cooled by nearly a percentage point after rising above 7% when the Federal Reserve enacted a series of interest rate hikes last year. The trend should improve housing affordability and push prices to bottom, according to the Wall Street Bank.

“The steepest declines in the US housing market are behind us,” Goldman analysts Ronnie Walker and Vinay Viswanathan said in a note to clients published Monday.

The strategists added that they “expect a peak-to-trough decline in national house prices of about 6% and for prices to stop falling by mid-year.”

Overheated housing markets on the West Coast and in the Southwest will likely experience “larger declines” in home prices compared to the national rate due to excess inventory, according to the note. Meanwhile, markets located in the Mid-Atlantic and Midwest regions will see “further declines.”

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San Diego is one of the US cities expected to experience the worst price drops.
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Rising mortgage rates have caused a major correction in the US real estate market in recent months, sidelining potential buyers and causing sellers to reconsider their plans or slash sales prices to attract more interest.

Other firms, including Pantheon Macroeconomics, project further declines in home prices before a bottom is reached. In December, Pantheon’s Ian Shepherdson said prices could fall by as much as 20% during a multi-year market correction.

Goldman pointed to some promising recent trends in the market. After falling to a 25-year low last year, mortgage purchase applications are up an average of 9% compared to their trough in October.

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Goldman Sachs expects the price declines to end by mid-year.
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“We suspect that existing home sales could decline a bit further, but will likely bottom out in the first quarter,” the analysts wrote.

Still, homeowners in many markets, especially so-called “pandemic boom cities” that benefited from loose fiscal policy during the COVID-19 crisis, can expect more financial trouble before bottoming out.

As The Post reported, Goldman Sachs predicted earlier this month that four cities: San Jose, California; Austin, Texas; Phoenix, Ariz.; and San Diego, California will see price drops of 25% from recent highs. Those drops would be on par with the collapse experienced during the 2008 housing crisis.

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Goldman noted a recent cooling in mortgage rates.
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“This [national] the drop should be small enough to avoid widespread mortgage credit stress, and a sharp increase in foreclosures across the country seems unlikely,” the bank said.

“That said, overheated real estate markets in the Southwest and Pacific Rim, such as the San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA will likely deal with peak-to-trough declines of more than 25%, presenting a localized risk of greater delinquencies for mortgages originated in 2022 or the end of 2021.”