What’s up everyone
Goldman Sachs released an article this week titled “Why the global housing market has further to slide” where they break down how bad home prices may get in highly developed countries like the U.S., New Zealand and Canada.
“A contraction in housing starts, sales and prices has persisted this year and “shows little sign of stopping,” Goldman Sachs economists Joseph Briggs and Giovanni Pierdomenic wrote in a report.
And yet, Zillow has just revised their home value forecast to reflect a rise in their ZHVI which is the Zillow Home Value Index from February’s forecast, which projected growth of .2% in the next 12 months to 0.6% over the next 12 months.
They credit a lack of inventory as the reason home prices remain elevated even with high interest rates.
One thing they all agree on is the present affordability challenges for buyers.
So today we’ll take a look at Goldman Sachs forecast as well as Zillow and Redfin’s latest housing market updates to see where home prices are heading in the imminent future.
Lets dive right in
In the Goldman Sachs report dated March 22, they say that higher mortgage rates will keep the housing markets in most G10 economies in correction mode through at least the end of 2023.
“Since mortgage rates have only recently peaked in most countries and could be headed higher still, the global housing market may not have yet found its bottom”, according to GS Research.
They predict meaningful peak-to-trough home price declines in developed markets where housing affordability plunged following the pandemic, including New Zealand (-19%), Canada (-19%), Sweden (-17%) and Australia (-15%).
Developed markets that will likely see flat or moderate declines include Italy (-2% peak to trough), France (-4%) and Switzerland (-6%), reflecting a slower increase in mortgage rates and “less stretched” affordability.
So what do they predict for the U.S.?
In the GS report, they clarify that interest rates are not the only factor when determining the housing outlook- in fact mortgage rate increases account for less than half of the forecast variance in most countries.
It’s also about inventory.
This is where Zillow and Goldman Sachs agree- our lack of inventory will stop home prices on a national level from plummeting.
Where they disagree is Zillow believes home values will increase, even if only a little, while GS thinks U.S. home prices will continue to go down.
An updated analysis of Zillow Home Value Index data by Lance Lambert’s Fortune finds that 38% of the nation’s 200 largest housing markets saw a month-over-month home price decline in February.
That share has steadily gone down over the past few months.
At the height of the housing correction, 79% of the nation’s 200 largest housing markets saw a month-over-month home price decline in September.
In October, 76% of those major markets saw a home price decline.
In November and December, it was down to 64% and 67%, respectively.
And by January, just 47% of the nation’s 200 largest housing markets registered a month-over-month home price decline.
So the pattern is clear, while it will vary, depending on what market you’re in.
As we know, real estate is very localized and what is happening in the housing markets in Boise and Austin is very different than where I am, for example, in the DC area.
According to Zillow, Boise and Austin are both down 8.9% from its peak while the DC area is down 2.04%.
And to be honest, where I am specifically, in Montgomery County MD, DC and NOVA, good houses that are priced appropriately and show well are still selling in multiple offers and escalating above the asking price.
What about where you are? Are prices going down or are you seeing multiple offers and bidding wars now in April of 2023? Comment below and tell us where you live and what you are seeing.
If we look at home prices from a NATIONAL perspective, U.S. home prices are down 2.7% since peaking 6 months ago according to Fortune’s article.
So what does GS think will happen in the U.S. in the next 12 months?
Goldman Sachs research team predicts “relatively tame” home price declines for the U.S., a peak-to-trough decline of 5%, owing mainly to its extremely low vacancy rate.
To put things into perspective, if U.S. home prices fall 5% from the 2022 peak, National Home Prices in the country would still be up approximately 34% from the March 2020 levels.
And if you compare it to the 2008 Housing Crash- this correction seems pretty tame.
Home prices fell 26% peak-to-trough between 2007 and 2012.
But the problems don’t end here.
The affordability crisis will only get worse with higher interest rates and still high prices.
“Higher borrowing costs for homebuyers have weighed heavily on housing affordability and the full impact likely hasn’t been felt yet… The timing of the impact isn’t uniform across the world; differences in mortgage markets across countries can speed or slow the impact. Countries with higher shares of fixed-rate mortgages, for example, tend to experience delayed rate impacts,” wrote Goldman researchers.
And the recent turmoil with several banks imploding only adds to the uncertainty of the future of the housing market.
“The banking-industry chaos of the last few weeks likely prevented the Fed from making a big, inflation-fighting hike this week that could have sent mortgage rates soaring,” said Redfin Chief Economist Daryl Fairweather. “They kept the hike small partly because banking turmoil naturally combats inflation. As a result, the housing market is in a better place now than it was a few weeks ago.”
So what is the answer?
How do we fight inflation and create more affordable housing.
It seems like this is a lose-lose situation until we get a LOT more inventory.
Some of your comments suggest we will see an onslaught of foreclosures which will increase inventory.
According to ATTOM, a leading curator of land, property and real estate data, foreclosure activity has started to stabilize.
Rob Barber, chief executive officer at ATTOM said in a March 8th report, “The numbers don’t yet show a clear trend toward fewer foreclosures. But with historically high levels of home equity flowing from a decade of rising values, we may be seeing a growing number of delinquent mortgage payers with at least the option to sell before facing foreclosure.”
So far, we have not seen a huge influx of inventory – at least not where I am and not on a national level.
According to Redfin, New listings of U.S. homes for sale fell 22% from a year earlier during the four weeks ending March 19, one of the biggest declines since the housing market nearly ground to a halt in the beginning of the pandemic (new listings fell slightly more in December 2022).
New listings declined in all but one of the 50 most populous U.S. metros, with the biggest declines in Sacramento (-48.6%), Oakland (-45.3%), San Francisco (-43.2%), San Jose (-41.6%) and San Diego (-41.3%).
They increased 1.3% in Nashville, TN.
Redfin also reports that Active listings, (the number of homes listed for sale at any point during the period) were up 15.4% from a year earlier, the smallest increase in more than three months.
And the Months of supply—a measure of the balance between supply and demand, calculated by the number of months it would take for the current inventory to sell at the current sales pace—was 2.9 months, down from 3.7 months a month earlier and up from 1.9 months a year earlier.
This all points to a LOT less inventory presently on the market which is slightly terrifying considering April is known for being a busy time of year for the housing market.
Zillow expects 4.3 million existing home sales in 2023, compared to 5 million sales in 2022.
This is down slightly from February’s forecast of 4.6 million sales in 2023.
Weaker-than-expected performance of leading indicators of home sales, combined with a perceived increase in higher mortgage rates, drove the downward adjustment.
So all of the data points to a very tight housing market with no real signs of easing up.
Goldman Sachs economists Briggs and Pierdomenico believe the housing declines around the globe are going “according to plan”.
“The strong housing market response to rate hikes has helped slow overall growth below trend without causing a recession or triggering a rise in delinquencies in most major economies. We anticipate that this pattern will continue.”
And Redfin’s Daryl Fairweather said, “Mortgage rates are unlikely to increase again unless the next inflation report is worse than expected. Sidelined buyers should be on high alert in the coming days and weeks, which could offer a window to lock in a rate closer to 6% than 7%.”
I think these next few months will tell us a lot. Will the chaos of the banking industry help tame inflation?
If you want to know more about what Lawrence Yun, the chief economist of the National Association of REALTORS® and others are saying about the impact of SVB and the other banks, check out this next video.