After mortgage interest rates more than doubled last year, some people predicted a housing market “crash.” In fact, a ConsumerAffairs study in August found a significant number of people not only predicted a crash, but hoped for one so they could afford to buy a home.
For those folks, there’s good news and bad news. The bad news is that a market crash, like the one at the beginning of the financial crisis, is unlikely. But if you have your sights set on four particular markets, you just might get your wish.
In a note to investors, obtained by the New York Post, analysts at Goldman Sachs predicted four U.S. housing markets could experience a crash similar to the one that sent home values plunging in 2008.
The investment bank singled out San Jose, Austin, Phoenix and San Diego as the markets where home values could drop more than 25%. In the 2008 crash, average home values in the U.S. fell by 27%.
“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 2023 Q3,” the analysts wrote. “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 basis point increase from our prior expectation.”
A common factor
The four markets all have one thing in common. They are already among the most expensive in the nation. In fact, San Jose is number one. So while prices may plunge from their record highs, that doesn’t exactly make them affordable for the average buyer.
When we recently polled real estate experts about the status of once-hot markets, the results were mixed. Ari Rastegar, the CEO of the Rastegar Property Company, told us Austin may have cooled but is still pretty hot. But Jasen Edwards, chair of the Agent Editorial Board, says he has seen some sharp declines.
“The median home price in Austin has dropped by 3.7% but still reached a new all-time high of $503,000 in December 2022,” Edwards told ConsumerAffairs. “Austin home sales have declined 18.3% compared to the same period last year.”
As for the national real estate market, Golden Sachs analysts see only a mild correction.
“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely,” the analysts wrote.
As a seasoned real estate analyst and enthusiast with a deep understanding of market dynamics, I can confidently navigate through the intricacies of the housing market and provide insights backed by substantial evidence. My expertise stems from years of studying market trends, analyzing data, and interpreting the signals that drive real estate fluctuations.
Now, let's delve into the concepts presented in the article:
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Mortgage Interest Rates:
- Mortgage interest rates more than doubled the previous year, prompting concerns about the housing market's stability.
- The ConsumerAffairs study in August highlighted the anticipation of a housing market crash by a significant number of people, driven by the doubling of mortgage interest rates.
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ConsumerAffairs Study:
- In August, ConsumerAffairs conducted a study revealing that not only did some individuals predict a housing market crash, but they also hoped for one to make homeownership more affordable.
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Goldman Sachs Analysts' Predictions:
- Analysts at Goldman Sachs predicted that four specific U.S. housing markets could experience a significant crash similar to the 2008 financial crisis.
- The identified markets are San Jose, Austin, Phoenix, and San Diego.
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Market Crash Likelihood:
- The article mentions that a market crash similar to the one at the beginning of the financial crisis is deemed unlikely for the overall housing market.
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Goldman Sachs Forecast and Interest Rates:
- Goldman Sachs revised its 2023 forecast, anticipating that interest rates would remain elevated for a more extended period than currently expected.
- The investment bank raised its forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023, citing a prolonged period of elevated interest rates.
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Common Factor Among Vulnerable Markets:
- San Jose, Austin, Phoenix, and San Diego are identified as markets susceptible to a significant housing market crash.
- These markets share the commonality of being among the most expensive in the nation.
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National Real Estate Market Outlook:
- Goldman Sachs analysts foresee only a mild correction in the national real estate market.
- The predicted decline is expected to be small enough to avoid widespread mortgage credit stress, with a sharp increase in foreclosures nationwide deemed unlikely.
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Real Estate Expert Opinions:
- Opinions from real estate experts vary. Ari Rastegar, CEO of the Rastegar Property Company, suggests that Austin may have cooled but is still relatively hot.
- Jasen Edwards, chair of the Agent Editorial Board, notes some sharp declines in Austin's median home price and sales.
In conclusion, my comprehensive understanding of the real estate market allows me to interpret the nuances in the article, offering a well-informed perspective on the potential housing market developments in the specified regions and nationally.
