Goldman Sachs predicts it will rise to 6.5% by the end of 2023.
Goldman Sachs predicts home values to worsen with skyrocketing interest rates and declining prices in San Jose, San Diego, Austin, and Phoenix.
The housing market has been a hot topic of discussion in recent months, as the pandemic has caused prices to skyrocket and mortgage rates to skyrocket as well. Goldman Sachs recently released a report predicting that four U.S. cities – San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona – will suffer the most drastic dips in home values, with peak-to-trough declines of more than 25%. This would be similar to the 27% decline experienced during the Great Recession in 2008. Goldman Sachs also forecasts that many Northeastern, Southeastern, and Midwestern markets could see milder corrections, with New York City and Chicago experiencing slight dips in home prices and Baltimore and Miami seeing higher prices.
The bank believes that these cities will experience the greatest losses because they became too detached from fundamentals during the COVID-19 pandemic housing boom. Goldman Sachs predicts that interest rates will remain at elevated levels longer than currently priced in, with 10-year Treasury yields peaking in 2023 Q3. As a result, the firm has raised its forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023, representing a 30 bp increase from its prior expectation.
Despite the expected losses in certain areas, Goldman Sachs believes that the national decline should be small enough to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely. If the economy remains on the path to a soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls back to 6.15% by year-end 2024, home price growth is expected to shift from depreciation to below-trend appreciation in 2024.
The housing market has been a volatile topic of discussion in recent months, with Goldman Sachs predicting that four U.S. cities will suffer the most drastic dips in home values. The firm believes that the continued skyrocketing interest rates and declining housing prices will cause home values to worsen through 2023. Goldman Sachs has raised its forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023, and predicts that many Northeastern, Southeastern, and Midwestern markets could see milder corrections. Despite the expected losses in certain areas, the bank believes that the national decline should be small enough to avoid broad mortgage credit stress. If the economy remains on the path to a soft landing, home price growth is expected to shift from depreciation to below-trend appreciation in 2024.
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