Goldman Sachs Makes a Bold Call on the Housing Market

Just two weeks after Goldman Sachs downgraded its outlook for the US housing market in a paper titled “Getting Worse Before It Gets Better”, the investment bank published a report titled “2023 Housing Outlook: Finding a Trough” on January 23. reversed course in one paper.

Instead of the 6.1% decline in US home prices in 2023 that was their January 10 prediction, the investment bank’s researchers now expect national home prices to decline only 2.6% in 2023.

By the time U.S. home prices bottom out this summer, Goldman Sachs says national home prices will be down about 6% from their June 2022 high. Previously, Goldman Sachs researchers were expecting a peak-to-trough decline closer to 10%.

“We expect national home prices to decline by approximately 6% and to level off price declines in the middle of the year. On a regional basis, we anticipate large declines in the Pacific Coast and Southwest regions – which have seen an average The Mid-Atlantic and Midwest have seen the largest increases in inventory — and more modest declines — which have maintained greater affordability over the past few years, the Goldman Sachs researchers wrote.

Why upward revision? Goldman Sachs says recent data points to a pick-up in demand from homebuyers.

“Home sales appear poised to go higher. Mortgage purchase applications are up 9% so far in January from their October trough and survey-based measures of purchase intent rebounded sharply,” Goldman Sachs researchers wrote. Is.

To get a better idea of ​​where house prices could be headed, both nationally and regionally, Luck asked Goldman Sachs to provide their full forecast.

let’s take a look.

Unlike KPMG, Goldman Sachs does not expect a double-digit home price correction. The investment bank says there are three reasons for the lack of a sharp recovery in this cycle.

Goldman Sachs researchers wrote, “First, the rapid build-up of unused home equity over the past few years means that even if prices decline more rapidly than we expect, only a small fraction of mortgage borrowers are in the water.” Will be down.” “Second, more than 90% of outstanding mortgages are fixed rates, meaning that interest rate increases will not increase debt service costs for most homeowners. And third, household balance sheets remain strong with low overall leverage and considerable balances.” pent-up savings from the COVID-19 pandemic.”

Goldman Sachs says those three factors should prevent the potential for “cascading defaults contributing to the post-GFC drawdown.” That previous recovery following the global financial crisis (GFC) of 2007/2008, which saw US home prices decline by 26% between 2007 and 2012—more than four times the peak-to-true decline of 6%, Goldman Sachs is predicting this time.