Prices could stop falling in 6 months, says Goldman Sachs

  • According to Goldman Sachs, a painful period for the US housing market seems to be coming to an end.
  • The bank predicted that prices will fall just 6% from their peak and bottom out in mid-2023.
  • But steeper declines are likely in West Coast cities like Austin and San Francisco, the strategists added.

The end of the problems of the US housing market is in sight, according to Goldman Sachs.

US bank strategists said this week that the easing in mortgage rates is likely to help the market find a bottom six months from now, with prices likely to have fallen about 6% from their point of view. maximum when the house hits bottom.

“The steepest declines in the US housing market are behind us,” a team led by Goldman Sachs chief economist Jan Hatzius said in a research note.

Low interest rates, stagnant supply and generous fiscal policies fueled a kind of house price bubble in the two years after the coronavirus pandemic hit the US in March 2020.

But that was followed by the most aggressive monetary tightening campaign by the Federal Reserve since the 1980s, when the central bank raised interest rates from near zero to around 4.5% last year in an attempt to squash the runaway inflation. That pushed mortgage rates to multi-year highs, causing a slowdown in demand for homes.

30-year mortgage rates peaked at 7.24% in November but have fallen nearly a percentage point since, and cooling inflation has raised hopes the Federal Reserve is nearing the end of its rate hike. of rates.

The drop in mortgage rates should eventually trickle down to the market by making home loans cheaper, which Goldman Sachs believes will eventually stop prices from falling.

“Since reaching 20-year highs of more than 7% in October, mortgage rates have fallen one percentage point, causing our housing affordability index to recover very slightly,” they said.

House prices could fall more sharply on the US West Coast because there is greater oversupply than in the more populous Mid-Atlantic and Midwest regions, the strategists added.

Goldman Sachs named Austin, San Francisco, San Diego, Phoenix and Denver as the five US cities likely to see steepest price declines of more than 10% from their peaks.

“Regionally, we project larger declines in the Pacific Coast and Southwest regions, which have experienced the largest increases in inventory on average, and more modest declines in the Mid-Atlantic and Midwest, which have maintained a affordability in the past two years,” Hatzius’s team said.

But the bank’s view that the market is only ready for a minor correction is not shared by ordinary people.

Two-thirds of Americans believe a housing market slump is “imminent within the next three years,” according to a NerdWatch poll that sought to gauge sentiments about the current slowdown.

Read more: The lumber market must weather a “treacherous” 2023 after last year’s staggering 66% price drop as the US housing slump deepens.

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