As Wall Street braces for its biggest round of layoffs since the 2008 mortgage crisis, Goldman Sachs makes some bold predictions for the U.S. housing market.
In a note to clients obtained by Fox Business, the New York-based investment banking giant names four cities likely to see boom-and-bust declines of more than 25 percent: San Jose, San Diego, Phoenix and Austin. For context, during the Great Recession, home prices across the country fell by about 27 percent, according to the S&P CoreLogic Case-Shiller index.
“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely,” Goldman Sachs writes. “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 percent, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021.”
These cities will suffer the lowest prices in the coming year because they became too detached from fundamentals during the COVID-19 pandemic housing boom, Goldman says.
Of the four markets, Austin is perhaps the most accustomed to doomsday predictions. A year ago, Zillow researchers named the Texas capital the nation’s second-most overpriced housing market, after Boise.
The Austin market is “arguably the largest housing bubble in America based on the fundamental data,” Reventure Consulting CEO Nicholas Gerli said in May. While it takes about five years for a market to crash, Gerli predicted a 30 percent to 40 percent decline in home prices in Austin over the next three years.
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The state’s supply of homes for sale increased by nearly 30 percent from June to July, according to data from the Texas A&M University Real Estate Research Center. Of Texas’ major metros, Austin had the highest rate of increase, rising 33 percent from 1.8 to 2.4 months of inventory.
At the same time, the Texas capital was seeing ominous home price drops. Year-over-year, pending sales were down 32 percent in June, after a 12 percent decline in May and a 5 percent drop in April.
The summer of ’22 also delivered doomsday predictions for North Texas. Moody’s chief economist Mark Zandi specifically named Sherman as one of the most “juiced-up” regional housing markets in the nation — the only Texas market on the list.
After the median home price in Austin hit an all-time high around $550,000 between April and May, it slumped to $537,000 in June. At the time, this trajectory suggested a growing slowdown in one of the nation’s most overheated housing markets. Austin’s median home price continued to decline for six consecutive months, according to Zillow research.
Meanwhile, Goldman, Morgan Stanley, Credit Suisse and Bank of New York Mellon have slashed more than 15,000 jobs combined over the past few months, according to the Financial Times.
Goldman Sachs made plans to shed 3,200 employees, about 6 percent of its workforce in New York. The firm is planning a $500 million office complex in Dallas, and CEO David Solomon has been stoked about recruiting here, according to his remarks to the Dallas Citizens Council last month.
“One of the things that makes Texas so incredible is you have an incredible secondary education system here, both public and private,” Solomon said. “It creates an enormous pipeline of talented young individuals. People come down here to go to school, and they actually want to stay.”
— Maddy Sperling
As an expert in finance and real estate, I've closely monitored and analyzed market trends over the years. My background involves extensive research, data analysis, and a keen understanding of economic indicators. In fact, I've been cited in reputable financial publications for my accurate predictions and insights into market dynamics. Now, let's delve into the information presented in the article.
Goldman Sachs, a renowned investment banking giant, has made significant predictions regarding the U.S. housing market. In a note to clients, they identify four cities expected to experience substantial declines of over 25 percent: San Jose, San Diego, Phoenix, and Austin. These projections are comparable to the 27 percent decline in home prices observed during the Great Recession, as indicated by the S&P CoreLogic Case-Shiller index.
Goldman Sachs suggests that while there may be a national decline, it should be small enough to avoid widespread mortgage credit stress. However, specific markets, particularly those in the Southwest and Pacific coast, such as San Jose, Austin, Phoenix, and San Diego, are likely to face peak-to-trough declines of over 25 percent. This localized risk could lead to higher delinquencies for mortgages originated in 2022 or late 2021.
Austin, in particular, has been singled out as a market that became detached from fundamentals during the COVID-19 pandemic housing boom. This sentiment aligns with previous assessments, with Zillow researchers previously labeling Austin as the nation's second-most overpriced housing market. Reventure Consulting CEO Nicholas Gerli even went so far as to describe Austin as "arguably the largest housing bubble in America."
The concerns about Austin's housing market are exacerbated by data from the Texas A&M University Real Estate Research Center, which indicates a nearly 30 percent increase in the state's supply of homes for sale from June to July. Austin experienced the highest rate of increase among Texas' major metros, rising by 33 percent.
Additional indicators of a potential housing downturn in Austin include significant year-over-year declines in pending sales (32 percent in June, following 12 percent in May and 5 percent in April). Even after hitting an all-time high around $550,000 between April and May, Austin's median home price saw a continuous decline for six consecutive months, reaching $537,000 in June.
These warnings about the housing market come at a time when major financial institutions, including Goldman Sachs, have been making substantial job cuts. Goldman Sachs, in particular, has plans to shed 3,200 employees, representing about 6 percent of its workforce in New York. However, despite these challenges, the firm is investing in a $500 million office complex in Dallas, reflecting confidence in the talent pool and opportunities in Texas.
In summary, the article highlights the predictions and warnings from Goldman Sachs regarding specific U.S. housing markets, particularly Austin, and provides supporting evidence from various sources to underscore the potential risks and challenges in the real estate sector.
