Goldman Sachs: Four Cities Face 2008-Sized Crash in Housing Prices

Goldman Sachs is forecasting that four US cities should brace for a decline in housing prices of more than 25%, a plunge not seen since the housing market collapse in 2008.

In an advisory to its clients this month, Goldman said home prices in San Jose, Austin, Phoenix and San Diego will experience boom-to-bust pendulum swings that will likely take prices down this year by more than 25% compared to 2022 peaks, the NY Post reported.

The Wall Street investment titan said these declines will rival the collapse in home prices during the Great Recession, which saw prices fall 27% as measured by the S&P CoreLogic Case-Shiller index.

Other major US markets that Goldman forecasts will see home prices declining by more than 10% include Tampa, Dallas, Denver, Las Vegas, San Francisco, Portland and Seattle.

However, Goldman also projected that the national decline in home prices would be “small enough” to avoid the widespread foreclosures that were seen in the Great Recession.

“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely. That said, overheated housing markets in the Southwest and Pacific coast, such as San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA will likely grapple with peak-to-trough declines of over 25%, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021,” Goldman’s advisory to clients said, according to the NY Post report.

At the other end of the scale, Goldman projects slight home price declines in New York (-0.3%) and Chicago (-1.8%) and modest price increases in Miami (+0.8%) and Baltimore (+0.5%) in 2023.

Goldman also raised its forecast for the year-end 30-year fixed mortgage rate in 2023 to 6.5%.

“Our 2023 revised forecast primarily reflects our view that interest rates will remain at elevated levels longer than currently priced in, with 10-year Treasury yields peaking in Q3 2023. As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023 (representing a 30 bps increase from our prior expectation),” Goldman’s strategists said.

Adding the caveats “assuming the economy remains on the path to a soft landing, [avoids] a recession, and the 30-year fixed mortgage rate falls back to 6.15%,” Goldman projected that home prices will “shift from depreciation to below-trend appreciation in 2024.”

Of the four cities in Goldman’s projected boom-to-bust bullseye, thus far only San Jose has experienced the kind of precipitous drop in home prices projected by the investment firm. Average home values in San Jose, which peaked at nearly $1.7M in April, have dropped to less than $1.2M.

San Diego, which reached its peak average of $850K in May, has declined to $785K, and Phoenix, which peaked at $460K in May, has dipped to $410K. Austin’s average home prices, now at about $599K, are still increasing, according to a report from Norada.