US home prices are going to stall completely as soaring mortgage rates crush demand, Goldman Sachs warns
- Goldman Sachs told clients it expects US home prices to stall completely in 2023 as demand drops.
- Prices soared during the pandemic, but Fed rate hikes are rapidly cooling the US property market.
Goldman Sachs believes the growth in US home prices will shudder to a halt next year, as demand crumbles in the face of higher mortgage costs and unaffordability.
The Wall Street bank's analysts forecast that house-price growth will slow sharply in the coming quarters, before falling to zero in the third quarter of next year.
"We expect home price growth to stall completely, averaging 0% in 2023," the team led by chief economist Jan Hatzius said in a note Tuesday.
"While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely," they added.
US house prices soared during the coronavirus pandemic as Americans sought more living space during lockdowns and as the Federal Reserve slashed interest rates, which lowered the cost of mortgages.
The S&P Case-Shiller home price index rose more than 40% between February 2020 and May 2022, the latest reading.
Yet Goldman said the sharp increase in the cost of houses, combined with the rise in mortgage rates as a result of the Federal Reserve's interest-rate hikes, has meant homes are now unaffordable for many buyers.
Existing home sales have already plunged 30% from their peak. They are likely to fall further, which will weigh on prices, Goldman's analysts said.
"Higher mortgage rates and reduced affordability are not the only drag on housing," Hatzius and colleagues wrote.
"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."
Other economists are more pessimistic about the US housing market, given the Fed is raising interest rates at the fastest pace since the 1980s.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, told clients in a note last week that home prices are probably already falling following the Fed's rate hikes and sharp drop in sales.
- Which countries are most affected by severe seismic activity? New earthquake metric provides fresh perspective
- Exicom Tele-Systems to raise ₹429 cr via IPO; sets price band at ₹135-142/share
- Kawasaki Ninja 500 sports bike launched in India at ₹5.24 lakh
- Vodafone Idea board to meet on Feb 27 to consider fundraising proposal
- Stocks rebound: Sensex jumps over 500 points, Nifty hits fresh high