Goldman Sachs says 4 cities likely to see 2008-style housing collapse: report

(NEXSTAR) — Goldman Sachs is forecasting dark days in 2023 for some of the pandemic’s hot US housing markets.

The investment bank shied away from predicting a nationwide collapse, but warned that residents in four cities in particular could see a sharp drop in values ​​mirroring the housing collapse of 2008, according to a note to clients obtained by New York Post.

The “overheated” markets mentioned in the note are: San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California.

Goldman now believes interest rates will remain high for longer than expected, and has told clients that the bank is raising its forecast for the 30-year fixed-rate mortgage rate to 6.5% by year-end 2023.

Marked September 2022 First time Since the 2008 housing crisis, the average long-term mortgage rate has exceeded 6%.

High mortgage rates, along with rising home prices, are currently driving some buyers away and contributing to a cooling in the housing market.

Austin, which was ranked the #1 real estate market in the United States in 2021 by Zillow, has decreased to 30 for the year 2023. The company’s report called the market “ice cold” and stated that homes now spend an average of 68 days on the market, more than any other major U.S. metro. The Austin Council of Realtors disputed the report, saying there was still “incredibly high demand”.

But how bad could things get in 2023?

Prices are expected to fall less than 2% in cities like New York and Chicago, according to Goldman, and are even expected to grow in others, like Baltimore and Miami.

In cities where ratings have deviated from fundamentals, the decline is expected to be even more devastating, according to the note.

“This is amazing [national] The downturn should be small enough to avoid broad mortgage credit pressures, with a sharp increase in mortgage foreclosures nationwide seeming unlikely,” Goldman Sachs wrote. “However, overheating housing markets in the Southwest and Pacific Coast, such as San Francisco, Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA likely to grapple with peak-to-trough declines greater than 25%, presenting higher domestic risks Mortgage defaults originating in 2022 or late 2021 “.

said Lawrence Yoon, chief economist of the National Association of Realtors in its forecast for 2023 He sees “signs of hope” for the country as a whole and expects house prices to be flat on average.

“Half of the country may see slight price gains, while the other half may see slight price decreases,” Yoon said. However, the exceptions are markets such as the San Francisco Bay Area, where San Jose is located, which is projected to see a potential decline of 10-15% in 2023.

“Mortgage rates are the lifeblood that drives home sales,” Yoon said. The average 30-year loan rate was 6.15% this week, nearly a full point below the September 2022 high of 7.08%.

The same rate was 3.56% this time last year, according to Freddie Mac.

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