Home prices to tumble over 25% from peak levels in ‘overheated’ markets, says Goldman


Credit researchers at Goldman Sachs now expect home prices in several “overheated” metro areas to fall over 25% from peak levels.

Metro areas included in their forecast were San Jose, Austin, Phoenix and San Diego, according to a new home-price outlook from a Goldman research team led by Lotfi Karoui.

Some of the markets at risk for the biggest price drops this year (see chart) already saw at least a 10% depreciation in home price growth, according to the Goldman team.

Austin, San Francisco, San Diego and Phoenix to see biggest home price declines in 2023.

Zillow, Goldman Sachs Global Investment Research

While sharp price drops could present “localized risk of higher delinquencies for mortgages originated in 2022 or late 2021,” declines aren’t expected to be as big of a threat everywhere.

Nationally, the Goldman team expects home prices to fall by roughly 10% this year from June 2022 levels, following their roughly 4% estimated decline in the second half of last year.

“This decline should be small enough to avoid broad mortgage-credit stress, with a sharp increase in foreclosures nationwide seeming unlikely,” the team wrote.

U.S. real-estate activity has fallen off a cliff since the Federal Reserve began jacking up rates in March to tame high inflation. Home prices, however, also rose 40% since March 2020, according to Deutsche Bank.

The new Goldman home-price forecast hinged on an expectation that interest rates will remain elevated for longer. The team said their year-end forecast for the 30-year fixed-rate mortgage was revised higher by 30 basis points to 6.5%, but they expect it to retreat to 6.15% in 2024.

“This path would cause affordability to worsen incrementally, after a slight improvement over the past two months,” the team said, with home prices likely to shift to a 1% appreciation in 2024 if the U.S. economy avoids a recession.

U.S. stocks rose for a second straight session Wednesday, a day before an update on consumer inflation is expected to show a monthly decline in the annual rate to 6.5% from a 9.1% peak this summer. The Dow Jones Industrial Average DJIA, +0.80% gained 0.8% Wednesday, the S&P 500 index SPX, +1.28% rose 1.3% and the Nasdaq Composite Index COMP, +1.76% advanced 1.8%.

Read: Why Thursday’s U.S. CPI report might kill stock market’s hope of inflation melting away


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