Goldman Sachs Predicts that Home Prices Are Expected to Drop Rapidly

Analysts from Goldman Sachs predict that four cities in the United States that witnessed housing booms during the Wuhan virus pandemic will experience steep declines in home prices by the end of 2024. 

The cities in question — Austin, Phoenix, San Francisco, and Seattle — are expected to experience double-digit price reductions as an increase in housing supply is expected to exceed demand.  

The largest decrease in home prices will take place in Austin, where the values are projected to fall by 19% by late 2024 compared to the end of 2022. Prices are projected to plummet in Phoenix by 16%, San Francisco by 15%, and Seattle by 12%.

“Rather than being indicative of things to come across the country, we view the nascent oversupply in Pacific Coast and Southwest markets as reflecting local challenges, particularly very poor levels of affordability, pandemic-related distortions, and (in certain markets) a high concentration of employment in the technology industry,” the Goldman Sachs analysts stated.

The analysts noted that San Francisco and Seattle host big tech firms such as Amazon, Google and Twitter have been carrying out layoffs as a response to deteriorating economic conditions.

Goldman Sachs projects that home prices will drop by 6.1% in 2023 as the housing correction goes down. 

Mortgage rates have increased over the last year. Per Freddie Mac’s figures, mortgage rates have been on average 6.5%. These increased mortgage rates have priced out many potential homebuyers and has compelled several owners to lower their asking prices to boost demand. 

Due to inflation, the Federal Reserve may feel compelled to hike interest rates, which will place higher pressure on the housing market. That said, housing inventories are still hovering below normal levels.

Overall, housing inventories are still running below normal levels, which has kept prices from experiencing a massive collapse. 

Home ownership in the US is becoming increasingly out of reach for the middle class. To ensure that people can still participate in the housing market, there needs to be wholesale deregulation of housing construction and reform of zoning laws that allow for more sustainable forms of affordable housing to be built. On top of that, bringing in sound money would allow for people to preserve their purchasing power and have a stronger chance of participating in home ownership. 

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