When will US home prices finally stop falling?
An end may finally be in sight to a prolonged downturn in the US housing market, according to Goldman Sachs strategists.
Wall Street analysts said in a note this week Lower mortgage rates It is likely to stop the significant decline in housing prices “by the middle of the year.” They see prices fall about 6% from their peak before bottoming out sometime in the next six months.
“The largest declines in the US housing market are now behind us,” strategists led by Goldman’s chief economist Jan Hatzius said in the note.
During the COVID-19 pandemic, home prices have risen at a pace not seen since the 1970s with mortgage rates nearing a record low. Homebuyers—flushed with stimulus cash and eager to make more space during the pandemic—have flocked to the suburbs; Demand was so strong, and inventory so low, at the peak of the market that some buyers waived home inspections and appraisals or paid hundreds of thousands for the asking price.
The US housing market is showing early signs of recovery as demand picks up
This madness stopped when it stopped Federal Reserve It embarked on the most aggressive rate-raising campaign since the 1980s as it attempted to slow the economy and crush runaway inflation. Policymakers have already raised the record seven consecutive federal funds rate in 2022 and have signaled they plan to continue raising interest rates this year as they try to crush still abnormally high inflation.
The interest rate-sensitive housing market bore the brunt of the hawkish policy, with mortgage rates doubling over the course of the year. Home sales evaporated and prices began to fall from record lows.
But demand is showing early signs of returning as mortgage rates continue to fall: the average rate of a Fixed mortgage loan for 30 years It fell to 6.13% this week, according to data from mortgage lender Freddie Mac. (This is still much higher than it was just a year ago when rates hovered around 3.56%).
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The continued decline in mortgage rates will eventually make its way through the market by making it cheaper to buy a home; Once that happens, Goldman Sachs predicts that home prices will stop falling.
“Since reaching a 20-year high of more than 7% in October, mortgage rates have fallen by a percentage point, causing the housing affordability index to rebound very slightly,” they said.
Other economists predicted sharper declines in the housing market. Ian Shepherdson, chief economist at Pantheon Macroeconomics, cautioned against this Home prices can drop as much as 20% of its peak.
Economists at Goldman Sachs have suggested that the decline in house prices may be uneven: They see a larger decline occurring in the West Coast where there is more oversupply than in the mid-Atlantic or Midwest regions.
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Austin, San Francisco, San Diego, Phoenix, and Denver are likely to see declines of more than 10% from their peaks.
“On a regional basis, we expect larger declines across the Pacific Coast and Southwest regions – which saw the largest inventory increases on average – and more modest declines across the Mid-Atlantic and Midwest – which maintained greater affordability over Over the past couple of years,” Hatzius wrote.