Goldman Sachs warns of four cities where home prices will fall at 2008 levels
Phoenix; San Diego; San Jose, Calif.; and Austin, Texas may experience 25% drops. The 2008 housing crisis caused a 27% decline in home prices.
Goldman Sachs predicted that home prices will continue to plummet throughout 2023. The most affected cities will be Phoenix; San Diego; San Jose, Calif.; and Austin, Texas, which are all projected experience decreases of more than 25%:
Overheated housing markets in the Southwest and Pacific coast, such as San Jose MSA (CA), Austin MSA (TX), Phoenix MSA (AZ), and San Diego MSA (CA) will likely grapple with peak-to-trough declines of over 25%.
In a report to its clients, the group warned that the four cities should prepare for a severe downturn, similar to that of the 2008 real estate crisis. According to the S&P CoreLogic Case-Shiller index, U.S. home prices fell by about 27% at that time.
Falling prices throughout the country
Overall, the group forecasts national home prices to fall by 6.1% in 2023. The estimate of the decline was previously only -4.1%. This would represent an aggregate decline of 10% from June 2022 to the end of this year.
Current forecasts are worse and more bearish because they anticipate mortgage rates to remain higher for longer than expected:
The report predicts that relief will come in 2024, when prices are projected to register positive growth of 1%:
Interest rates soar
Mortgage rates remain unpredictable, soaring from 3% to 6% in 2022 and peaking at 7.37% in November.
Currently, the average 30-year fixed rate is 6.09%. The rate for a 15-year mortgage, popular among home refinancers, is 5.28%, up from 2.79% a year ago. Group strategists told The New York Post:
Although home prices have stabilized as demand has declined, they are still nearly 11% higher than a year ago.
Home prices in the nation
Goldman also forecasts that many markets in the Northeast, Southeast and Midwest could experience milder corrections:
- New York (-0.3%)
- Chicago (-1.8%)
- San Francisco (-13.7%)
- Denver (-11.4%)
- Seattle (-11.2%)
- Tampa, Fla. (-11.2%)
- Las Vegas (-11.1%)
Small increases are also expected in Baltimore (+0.5%) and Miami (+0.8%) during the same period.
Fall predictions are consistent with
KPMG’s chief economist Diane Swonk agrees with Goldman, projecting a drop of up to 20% in home prices. She also links her forecast to the decline of employment in the technology sector. Companies such as Google, Facebook and Microsoft have cut thousands of jobs in recent weeks:
Interactive Brokers' senior economist Jose Torres predicted drops of 25%. The consensus seems to be that declines will be worse in the cities that made the biggest price jumps in recent years at the regional and city level. According to Zillow data, prices in Austin are already down more than 10% from their peak, while San Jose, San Diego and Phoenix are down more than 6.5%.