The worst is over!

What’s up everyone

According to Goldman Sachs, the ongoing plunge in US home prices may be nearing its end. 

“The sharpest declines in the US housing market are now behind us,” Goldman analysts Ronnie Walker and Vinay Viswanathan said in a client note released on Monday.

They believe the U.S. will not hit a recession this year and that were heading for a soft landing. 

Specifically, the firm sees a 35% chance of a recession, while the average on Wall Street is much higher, at 65%.

The strategists added that they “expect a peak-to-trough decline in national home prices of roughly 6% and for prices to stop declining around mid-year.”

Now, they do specify that this expectation is not for all housing markets across the country.

In fact, they believe overheated markets on the West Coast and in the Southwest will likely experience “larger declines” in home prices compared to the national rate 

“On a regional basis, we project larger declines across the Pacific Coast and Southwest regions – which have seen the largest increases in inventory on average – and more modest declines across the Mid-Atlantic and Midwest – which have maintained greater affordability over the past couple years,” a team led by Goldman Sachs’ chief economist Jan Hatzius said in a research note.

They cite four cities – San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California that they think will see price declines of 25% from recent highs. 

Those declines would be on par from the collapse experienced during the 2008 housing crash.

Last week, Fortune reached out to Ali Wolf, Zonda’s chief economist to get her opinion on whether the U.S. housing market recession is actually bottoming out.

So let’s see what she has to say and then we’ll look at this week’s data on the housing market.

Lets dive right in

Fortune asked Ali if she also sees signs that housing demand is starting to recover.

She responded by saying that There has been an uptick in buyer interest since the beginning of the year related to three key things: seasonality, acceptance, and discounts.

Let’s go through them quickly

Seasonality- She points out (and I agree) that the spring market, which traditionally starts right after the Super Bowl, but can start earlier if the weather is good, is always busier than the end of the year. 

Zonda reported that 38% of builders told them that traffic has been stronger than expected in January so far which shows renewed interest. 

The more important metric is to see if resale inventory increases as it usually does in the spring market.

Acceptance- Buyers are starting to enter the acceptance phase of interest rates no longer being at historic lows. 

We are on the 10th consecutive week of mortgage rates averaging below 7%. This stability in rates is giving consumers a bit more confidence about where the market is right now. 

Discounts-  Homebuilders now represent over 30% of overall housing inventory. According to Wolf, roughly 40% of builders have ripped the bandaid off and  lowered home prices between five and 15%.

As a result, For consumers, the FOBATT [fear of buying at the top] mentality is calmed a bit 

Heading into 2023, Zonda predicted that U.S. home prices would fall around 15% peak to trough

Fortune asked her if she has made any shifts in her expectations for U.S. house prices?

Here is her answer:

We still expect home prices to be down in 2023 compared to 2022, but how deep a decline will depend on how quickly sellers “find the market” with price cuts, what happens with mortgage rates, how inventory levels trend, and what happens related to a U.S. economic recession.

According to a NerdWatch survey about the current slowdown, Two-thirds of Americans believe that a housing market crash is “imminent in the next three years”

What do you guys think? I can tell you that here in the DC area, houses that are priced well and show well are still selling in multiple offers at or above asking price.

On the other hand, I visited 2 homes in Potomac yesterday with my buyers that showed terribly and needed so much work.  They smelled bad, kitchen and bathrooms were original, carpet was gross and were priced too high for so much work.

These houses are sitting on the market and will continue to do so until the price is reduced so much that a buyer won’t care. They have a long way to go.

I also have clients interested in new construction here in Bethesda. In the past week, all of the home sites in this phase have gone under contract or have a hold on them so interest is definitely picked up which is a good sign for the market – but a bad sign if buyers think prices are going down.

Let’s end with some current data from Redfin to see how the market is faring overall.

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