Goldman Sachs says 4 US cities will suffer a 2008 crash in home values

Goldman Sachs expects home values ​​to worsen through 2023 amid continued rising interest rates and declining home prices.

The firm wrote to clients earlier this month that it predicted four US cities would suffer the worst recession, drawing comparisons to the 2008 housing crash.

San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona, will likely see noticeable growth before a drastic decline of more than 25%.

These declines may be similar to those witnessed during the Great Recession of 2008. Home prices across the US fell around 27% during that time, according to the S&P CoreLogic Case-Shiller index.

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“Our revised forecast to 2023 primarily reflects our view that interest rates will remain at elevated levels higher than currently priced in, with the 10-year Treasury yield of peaking in 2023 Q3,” Goldman Sachs strategists wrote, according to the New York Post. “As a result, we have raised our forecast for the 30-year fixed mortgage rate to 6.5% for the end of 2023 (representing an increase of 30 bp from our previous expectation).”

In 2022, mortgage rates jump from 3% to 6%.

“This [national] decrease should be small enough to avoid extensive mortgage credit stress, with a sharp increase in foreclosures across the country seems unlikely, “Goldman Sachs wrote. “Thus, the overheated housing market in the Southwest and Pacific coast, such as the San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA are likely to struggle with peak-to-trough declines of more than 25%, presenting a local risk of higher delinquencies for those debt originating in 2022 or late 2021.

The bank said that these cities will suffer the lowest prices this year because they are away from fundamentals during the COVID-19 pandemic housing boom.

Goldman Sachs also predicts that many Northeastern, Southeastern, and Midwestern markets will see milder corrections.

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Home prices are expected to drop slightly in New York City (-0.3%) and Chicago (-1.8%), while Baltimore (+0.5%) and Miami (+0.8%) will see higher prices , the company said.

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Miami

Home prices are expected to drop slightly in New York City and Chicago while Baltimore and Miami (pictured) will see higher prices. (iStock / iStock)

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“Assuming the economy remains on track for a soft landing, avoids a recession, and the 30-year fixed mortgage rate falls back to 6.15% by the end of 2024, the development house prices are likely to move from depreciation to below-trend appreciation in 2024,” wrote Goldman Sachs.

The average 30-year fixed mortgage rate was at 7.37% at its peak in November.

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