Four US cities that experienced housing booms during the COVID-19 pandemic are set for major declines in home prices by the end of next year, according to Goldman Sachs analysts.
The pandemic boomtowns of Austin, Seattle, Phoenix and San Francisco will all experience double-digit price declines as an increase of available homes surpasses demand, the bank’s analysts said in a note to clients last Thursday obtained by Insider.
The largest decrease in home prices will occur in Austin, where values are projected to slump 19% by late 2024 compared to late 2022, according to the note. Prices are expected to sink 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 said in the note, according to Insider.
As the analysts noted, Seattle and San Francisco are home to major tech firms — many of which, including giants such as Amazon, Google and Twitter, have conducted layoffs in response to worsening economic conditions.
On a national level, home prices are expected to plunge by 6.1% this year as the housing correction plays out, according to Goldman.
The once-red-hot US housing market has struggled over the last year during a surge in mortgage rates, which were hovering at an average of 6.5% as of last week, according to Freddie Mac.
The steep rates have pushed many prospective homebuyers to the sidelines and forced some owners to slash their asking prices to entice demand.
Mortgage rates have cooled slightly since peaking above 7% last fall. Still, some recent troubling inflation data has exacerbated fears that the Federal Reserve will hike benchmark interest rates higher than expected.
Overall, housing inventories are still running below normal levels — a trend that has kept prices from a larger collapse.
“Even if every single home under construction was completed and listed on the market immediately,” the analysts said, “the months’ supply of homes (the ratio of inventory to annual sales) would still be below historic averages.”
Earlier this year, Goldman predicted that a decline in US home prices would likely conclude by the middle of this year — though the slump would continue in overheated markets in the West Coast and Southwest.
Sales of previously owned homes fell for the 12th consecutive month in January, falling 0.7% compared to December, according to data released by the National Association of Realtors.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the decline in home sales is nearing a bottom — but the price plunge will continue for months.
“Now that the downward adjustment in home sales to response to the initial surge in rates is largely complete, the big story for 2023 will be the speed and extent to which prices follow suit,” Shepherdson said in a note to clients.
Pantheon has predicted US home prices will fall by as much as 20% by the end of this year.