A decline in purchase intentions could lead to a further weakening in home sales, which would lower prices across the board, according to the note published by Goldman Sachs economists.

Goldman Sachs economists noted that the US housing market is likely to be in the midst of its first recession in more than a decade and investors should brace for it to get worse in the coming months.

In a note to clients, experts predicted that activity in the housing sector will slow sharply, with price growth ultimately falling to zero in the third quarter of next year.

“We expect house price growth to come to a complete halt, averaging 0% in 2023,” Goldman analyst Jan Hatzius said.

But even when home sales decline, prices remain high because supply remains so tight.

A decline in purchase intentions could lead to a further weakening in home sales, lowering prices across the board, Hatzius wrote in the note.

“Higher mortgage rates and reduced affordability are not the only barrier to housing,” the note said.

“Existing home sales and building permits have fallen more steeply this year in regions where they rose the most in the early part of the pandemic, suggesting that recent declines have also reflected the partial reversal of a COVID-related boost. pandemic in housing demand“.

In total, Goldman Sachs projects sharp falls this year in new home sales of up to 22%, while in existing home sales it calculates a 17% drop and for housing GDP, with a projection of minus 8.9 %.

Inflation forces buyers to cut spending
The analyst note comes as painfully high inflation and rising borrowing costs have forced would-be homebuyers to cut spending.

A slew of new economic data released earlier this month shows the sector is starting to slow down considerably: Homebuilders’ sentiment about the industry has plummeted to the lowest level in two years and buyers are pulling out of the market. at the fastest pace since 2020.

Also, builders are rethinking construction.

This comes as consumers face higher mortgage rates, which rose sharply in the first half of the year as the Fed began raising rates.

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