According to Goldman Sachs, the world’s largest investment bank, the US housing market will still be in negative decline throughout 2023.
Summary
US: housing market shows no signs of recovering
The recession is ascertained, but one fact that certifies the severity of the event and worries markets is that highlighted by Goldman Sachs researchers who published “The Housing Downturn: Further to Fall”, a report on how the US housing market has stalled after a tentative boom during the pandemic period.
The investment bank writes that the drop in new home sales this year will be 22%, the drop in existing homes will be 17%, and housing GDP will register -8.9%.
Goldman Sachs’ views
Goldman Sachs, as for 2023, predicts that the downturn in the housing market will have no respite and new home sales will decline by an additional 8% from this year, existing homes will drop by another 14%, and housing GDP will drop another 9.2%:
“Some of the recent weaknesses seem to reflect the reversal of the pandemic-related preference changes that are turning out to be more fleeting than we expected. We have previously noticed that the shock from the virus has accelerated family formation and increased demand for second homes … those favorable winds have already largely vanished, as regions that have experienced huge increases in home sales and permits construction in 2020 and 2021 are now experiencing a disproportionate decline this year. Past housing declines have typically been accompanied by economic downturns, which have led to an influx of housing supply as unemployment has risen and individuals have been forced to sell their homes (this was especially the case in the crisis. financial).
However, an influx of supply from this channel seems unlikely in this cycle: the labor market remains robust (and likely will be, even in a mild recession) and, as we wrote last week, household balance sheets are extremely strong and Loan default rates are expected to remain historically low. Thereafter, we expect house prices to remain stable in 2023.”
Goldman Sachs’ views are also shared by other entities such as Moody’s Analytics, John Burns Real Estate Consulting, Capital Economics, Zelman & Associates, and Zonda, which are predicting a bad situation for the market in at least the next year and a half.
Inflation and rising rates are not helping the US housing market
The decline, according to some, will be even larger than predicted by the big investment bank and will be more than 10%. Of this opinion are, for example, Fitch Ratings and economist Robert Shiller.
For Goldman Sachs, the market will find breathing room and try to rise only 3.5% from 2024 and 3.8 % the following year.
A Reuters poll shows how difficulty in accessing resources to spend is hurting demand.
After the pandemic had driven up US home prices by more than 40%, the trend has now changed. Those who already have a home are not selling it and buying another, while those who do not have one are staying in rented or parental homes, often giving up on buying one.
The Federal Reserve, which has raised rates by 225 basis points, and seems to want to continue with its iron fist at fighting inflation, is not helping this market, which is in complete stalemate.
Comments from other industry analystsÂ
Scott Anderson, chief economist at Bank of the West, said:
“The appreciation of house prices is set to stop abruptly under the weight of poor accessibility to housing and the deterioration of the economic and financial environment. This correction could happen all at once during a recession or gradually over time. Regardless of which way. as it is measured today, house prices are extremely expensive.”
According to Crystal Sunbury, senior real estate analyst at RSM, US homes are highly overvalued:
“House prices have outpaced inflation by a significant margin. Prices are unlikely to drop into ‘fair valuation’ territory in the foreseeable future.”
90% of the sector’s sales are of existing homes, and in the coming year they will drop by $4.73 million after this year had already touched the worst figure since 2020.
Matthew Gardner, chief economist at Windermere Real Estate, explained in an interview that:
“Buyers remain frightened by the rapid increase in financing costs they have seen so far this year. The cautious stance will continue until the spring of 2023, when sales will resume, albeit modestly.”
