US home price growth ‘to stall completely,’ Goldman warns

The US housing market still has “further to fall” in a recent downturn that has sparked fears of a recession, Goldman Sachs analysts warned in a note to clients on Tuesday.

The bank’s analysts expect home price growth in the once-booming market to “slow sharply” in the coming quarters, with declines to occur in some markets. The slowdown stems from dwindling demand from prospective homebuyers.

“We expect home price growth to stall completely, averaging 0% in 2023,” the Goldman analysts said. “While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.”

Buyers are faced with an affordability crisis due to surging mortgage rates and listing prices that hit fresh highs during the pandemic-era boom. The downtick in demand has blunted the impact of the “extremely limited available supply” of homes and prompted a price slump, according to Goldman.

“Existing home sales and building permits have fallen more sharply this year in regions where they increased the most in the earlier part of the pandemic, suggesting that the recent declines have also reflected the partial retreat of a pandemic-related boost to housing demand,” the note said.

Home for sale
Month-over-month declines in home prices have already begun, according to some reports.
AFP via Getty Images

“The sustained reduction in affordability, waning pandemic tailwind, and recent decline in purchasing intentions suggest that home sales are likely to fall further on net,” the analysts added.

Bloomberg earlier reported on Goldman’s note.

Buying activity and prices surged during the COVID-19 pandemic with Americans stuck at home for weeks at a time. But the housing market has softened considerably since the Federal Reserve began tightening monetary policy in an effort to combat inflation.

Mortgage rates hit 5.55% for a 30-year contract last week, nearly doubling since January as the market reacts to the Fed’s hawkish policy shift.

Fed Chair Jerome Powell has indicated the central bank will continue hiking rates in the months ahead, result in “some pain” for American households and potentially pushing mortgages even higher.

Home for sale
Goldman expects home prices to hit a rough patch in 2023.

“While we find that existing home sales are only one-third as sensitive to changes in rates in a supply-constrained environment, we still estimate that the higher path of mortgage rates this year will eventually weigh on the level of home sales by almost 4%,” the Goldman analysts said.

Home prices have yet to fall into a sustained annual decline at the national level, according to one measure. Prices were 18% higher in June than they were in the same month one year earlier, according to S&P CoreLogic Case-Shiller Indices data released Tuesday.

Still, price growth has begun to decelerate, with the 18% gain marking a downtick compared to the 19.9% pace in May.

Studies based on month-over-month data are bleaker. A separate report by mortgage analytics firm Black Knight showed home prices fell 0.77% from June to July.

Ian Shepherdson, a chief economist at Pantheon Macroeconomics, said prices declines had already begun and were “still nowhere near the bottom.”

A growing number of industry groups and firms have warned of troubling housing trends in recent weeks, with some declaring the market as already in a recession.

The CEO of real estate firm RedFin said earlier this week that home sale cancellations were spiking due to a “remarkably uncertain time” for buyers.

Earlier this month, data from RedFin showed that 21% of home sellers had dropped their asking prices in July – with the biggest declines occurring in so-called pandemic “boomtowns” such as Boise, Idaho.

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