Are we going to see a crash in the housing market? According to Goldman Sachs, a larger-than-expected correction in this market could be on the horizon. However, it is more specific than just the Goldman Sachs housing market forecast — the firm is looking at specific cities.
In a new report, the firm says there are four U.S. cities that could experience a 2008-style housing market crash. Wow. For anyone that was around during the Great Recession housing implosion, they know just how big of a correction that could be.
Goldman Sachs argue that Austin, Texas; Phoenix, Arizona; San Jose, California; and San Diego, California are the most likely candidates to see declines of more than 25%. More broadly, they reasoned that:
“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. 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 bp increase from our prior expectation.”
Goldman Sachs Housing Market Forecasts
Beyond the claims above, Goldman Sachs argues that some cities became too detached from fundamentals. That was amid the housing boom during the pandemic. However, not all markets are forecast for a dip. For instance, the firm suggests that Miami and Baltimore are likely to see slightly higher prices this year.
The Goldman Sachs housing market forecast is glum, but it’s also part of a mixed picture.
For instance, gross domestic product (GDP) for the fourth quarter just topped expectations this morning. A few hours later, housing data came in stronger than expected. Specifically, new home sales were expected to decline 4.7% in December. Instead, they rose 2.3%.
Based on some of these forecasts, one might think that Goldman Sachs is not that optimistic overall. However, that’s not really the case. While the firm does acknowledge some risk regarding the debt ceiling, it’s not assumed that it will end in catastrophe.
According to Jan Hatzius, chief economist at Goldman Sachs, “That is the worry [that Congress doesn’t lift the debt ceiling in time]: That you get turmoil in financial markets, a big tightening in financial conditions and that adds to downward pressure on economic activity.” He added, “That is certainly the worry. It’s not our expectation.”
In fact, Goldman Sachs has a rather optimistic outlook on the U.S. economy compared to other U.S. banks. It believes the U.S. will not hit a recession this year and that its base-case is 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%.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.