(NEXSTAR) – Goldman Sachs is predicting dark days in 2023 for some of the pandemic’s hot U.S. housing markets.
The investment bank was hesitant to predict a national crash, but warned that residents of four cities in particular could see plummeting values that echo the 2008 housing crash, according to a note to clients obtained by the New York Post.
The “overheated” markets mentioned in the memo were: San Jose, CA; Austin, TX; Phoenix, Arizona; and San Diego, California.
Goldman now believes interest rates will stay high longer than expected and has advised clients that the bank is raising its forecast for the 30-year fixed mortgage rate to 6.5% for the end of 2023.
September 2022 marked the first time since the 2008 housing crisis that the average long-term mortgage rate exceeded 6%.
High mortgage rates, combined with soaring home prices, are currently scaring off some buyers and helping to cool the housing market.
Austin, ranked the hottest U.S. real estate market for 2021 by Zillow, fell to 30th for 2023. The company’s report called the market «frozen» and said homes are now spending on average 68 days on the market, more than any other major US metro. The Austin Board of Realtors pushed back on the report, saying there is still «incredibly high demand.»
But just how bad could things get in 2023?
Prices are expected to fall less than 2% in cities like New York and Chicago, according to Goldman, and even rise in others, like Baltimore and Miami.
In cities where valuations have drifted away from fundamentals, the decline is expected to be much more devastating, according to the note.
«That [national] the decline should be small enough to avoid widespread stress on mortgage lending, with a sharp increase in nationwide foreclosures looking unlikely,” Goldman Sachs wrote. “That said, overheated Southwest Coast and Pacific real estate markets, such as San Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA, will likely be struggling with declines of more than 25%, presenting a higher localized risk. defaults for mortgages originated in 2022 or late 2021.”
National Association of Realtors chief economist Lawrence Yun said in his forecast for 2023 that he sees «encouraging signs» for the country as a whole and expects house prices to remain stable. on average.
«Half of the country may see slight price increases, while the other half may see slight price decreases,» Yun said. The exceptions, however, are markets like the San Francisco Bay Area, where San Jose is located, which he predicts will see potential declines of 10-15% in 2023.
«Mortgage rates are the lifeblood that drives home sales,» Yun said. The average rate on a 30-year loan was 6.15% this week, almost a full point below the high of 7.08% in September 2022.
The same rate was 3.56% this time last year, according to Freddie Mac.