Goldman Sachs sees home values ​​collapsing in these 4 cities

As interest rates continue to rise, home prices across the country continue to fall — and Goldman Sachs says the declines will only get worse and continue through 2023.

In a note to clients earlier this month, Goldman Sachs predicted that four US cities in particular should brace for a seismic downturn comparable to that of the 2008 housing crash.

San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California, will likely see a boom and bust of more than 25%.

Such declines would rival those seen about 15 years ago during the Great Recession. Home prices in the United States fell about 27%, according to the S&P CoreLogic Case-Shiller index.

“Our revised forecast for 2023 mainly reflects our view that interest rates will remain high for longer than currently anticipated, with 10-year Treasury yields peaking in the third quarter of 2023.” As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% by the end of 2023 (representing a 30 basis point increase from our previous expectation),” the strategists said.

Mortgage rates jumped from 3% to 6% in 2022, setting in motion the second major home price correction of the post-World War II era.

A look at the survey.
A look at the survey.

“This [national] the decline should be small enough to avoid widespread mortgage credit stress, with a sharp increase in foreclosures across the country looking unlikely. However, overheated housing markets in the Southwest and Pacific Coast, such as San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA will likely struggle with peak declines of more than 25%, posing a localized risk of higher mortgage delinquencies. arising in 2022 or late 2021,” Goldman Sachs wrote.

Goldman credits these cities with the lowest prices in the coming year because they got too far off fundamentals during the pandemic housing boom.

Meanwhile, Goldman predicts that many Northeast, Southeast and Midwestern markets could see milder corrections.

Phoenix is ​​among the cities that could see home values ​​plummet.
Phoenix is ​​among the cities that could see home values ​​plummet.
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Austin, Texas
Austin is also projected to experience a sharp decline.
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San Diego
San Diego also made the bank’s list.
Getty Images/iStockphoto

In 2023, the investment bank expects home prices to barely fall in cities like New York (-0.3%) and Chicago (-1.8%), while predicting higher prices in Baltimore (+0.5%) and Miami (+0.8%).

“Assuming the economy remains on track for a soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls to 6.15% by the end of 2024, home price growth is likely to shift from depreciation to below-trend appreciation in 2024,” adds Goldman Sachs.

At its peak in November, the average 30-year fixed mortgage rate was 7.37%.

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