House prices could plummet in four US cities by 2023

US home prices have started to cool, and there are at least four cities that boomed during the pandemic years but will start to cool rapidly this year, according to a Goldman Sachs analysis.

House prices are cooling in the United States; however, there are at least four markets that were very popular a couple of years ago that, by 2023, could see their prices plummet.
This was considered by Goldman Sachs analysts in a letter sent to clients, in which they specify that there are four major cities in the United States that will see their prices fall by up to 25%.

According to Goldman Sachs, prices will plummet in San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Ariz.
In these four markets, home prices have skyrocketed during the pandemic and in the case of San Jose, the cost of homes has become almost prohibitive for most buyers, killing affordability in this California city.

The investment and securities bank warned that the fall in prices in these four cities will be “catastrophic” and compared it to what happened in the real estate market during the great recession of 2008.

In that year, home prices fell 27%, leaving thousands of homebuyers with losses estimated at billions of dollars, according to the S&P CoreLogic Case-Shiller Index, according to a Fox Business report.

Low prices, but high rates

The forecast by Goldman Sachs analysts would indicate that, despite the fact that prices will continue their downward trend, interest rates for mortgages will remain high for a good part of 2023.

“Our revised forecast for 2023 primarily reflects our view that interest rates will remain elevated for longer than current value, with 10-year Treasury yields peaking in the third quarter of the year,” according to the Goldman Sachs analysts.

According to the revised analysis, the 30-year fixed mortgage rate, the most common for homebuyers, will remain at 6.5% towards the end of the year, which was 30 basis points higher compared to the previous forecast.

“That being said, overheated real estate markets in the Southwest and Pacific Coast, such as San Jose, Austin, Phoenix, and San Diego, will likely deal with peak-to-trough declines of more than 25%, presenting a localized risk of higher delinquencies for mortgages originating in 2022 or the end of 2021 ”, the analysts pointed out.

However, according to Goldman Sachs, these adjustments will be targeted, thus avoiding “mortgage credit stress” that could spread to other mortgage markets in the country.
Goldman Sachs also forecast that house prices will also fall, but much less in markets like New York, at minus 0.3%, and Chicago, at minus 1.8%.

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