Goldman Sachs says U.S. house prices likely to stabilise by 2023

The real estate market has had a volatile year, to say the least, with home sales growing from July 2021 until January 2022, after which an abrupt fall in sales has left houses sitting unsold on a cooling housing market. 

Besides the S&P Case-Shiller home price index rising over 40% from February 2020 to May 2022, Goldman Sachs (NYSE: GS) forecasts that house-price growth will slow sharply in the coming quarters before falling to zero in the third quarter of next year.

The Chief Economist Jan Hatzius, from Goldman Sachs, wrote in a new ominously titled note, “Housing Downturn: Further to Fall”, that further housing pressure is likely.

The banking giant sees US home prices falling primarily due to higher mortgage costs and general unaffordability as a result of the Federal Reserve (Fed) moves against inflation. Currently, the existing home sales have fallen by 30% from their peak, with Goldman seeing more pain, which will then be reflected in home prices.  

Building permits

With the fall in existing home sales came a decrease in building permits which suggests a retreat from the pandemic-related boost to housing demand in the US. On the other hand, price growth has yet to fall considerably, as June home prices are still 18% higher compared to the same period last year.  

However, the month-over-month data paints a different picture, as the median home price fell by 0.77% in July, the largest single-month drop since January 2011, according to data offered by Black Knight. The month-over-month data offers a better insight into how much and how quickly the housing market is shifting. 

Yet, other economists are in agreement with Goldman’s analysis that home prices have not reached the bottom and that there will be more pain ahead. Similarly, other indicators are showing troubling housing trends, for example, the increase in Google searches on selling a home. 

Through the pandemic, low-interest rates enabled the average home prices to skyrocket; therefore, these declines could be a positive development at the macro level. 

First-time home buyers could get a better entry into the housing market and help spur another uptrend in housing sales and prices, but analysts warn that prices will continue falling for the moment.   

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