4 cities where home prices will fall the most since the 2008 crash: San Jose, Austin, Phoenix and San Diego

- Advertisement -

According to Goldman Sachs, house prices will fall this year, with San Jose, Austin, Phoenix and San Diego pricing in 25% declines per barrel, boom on boom.

The Fed’s ongoing inflation fight, which pushed mortgage rates up from 3% to 7% in 2022, has strangled the housing market and triggered the biggest price correction since the crash of 2008.

Goldman warned investors in a research paper released earlier this month titled “Get Worse Before It Gets Better” that housing markets were particularly overheated in the Southwest and Pacific Rim.

While Goldman’s outlook for the national housing market is less dire, with prices down 6% this year before rising next year, some cities could see a sharp drop in home valuations.

San Jose, Austin, Phoenix and San Diego are expected to be stung with 25% declines that would rival the 2007-08 global financial crisis which saw home prices plunge 27% nationwide.

Goldman Sachs released its 2023 projections for home valuations, predicting the overheated West Coast and Southwest markets will see sharp corrections

In 2023, Goldman forecasts double-digit home price declines in key markets like Austin (-15.6%), San Francisco (-13.7%), San Diego (-13.4%), Phoenix ( -12.9%), Denver (-11.4%), Seattle (-11.2%), Tampa (-11.2%) and Las Vegas (-11.1%).

Austin has fallen 10.4% from its 2022 house price peak, meaning its boom-to-bust decline could be north of 25% as the trend continues this year.

Milder price corrections are expected in the Northeast, Southeast, and Midwest.

The bank forecasts a slight decline in real estate prices in Chicago (-1.8%) and New York (-0.3%) in 2023.

Small increases are expected in Baltimore (+0.5%) and Miami (+0.8%) during the same period.

Overall, Goldman expects U.S. home prices to fall 6.1% this year. This would represent an overall peak-to-trough decline of about 10% in U.S. home prices through the end of this year from June 2022.

House prices in Austin (above) are expected to fall 15.6% this year, meaning its total decline from last year's peak could be north of 25%

House prices in Austin (above) are expected to fall 15.6% this year, meaning its total decline from last year’s peak could be north of 25%

A 'For Sale' sign outside a home in Phoenix, Arizona is seen in a file photo.  Goldman predicts Phoenix home prices will fall another 12.9% this year

A ‘For Sale’ sign outside a home in Phoenix, Arizona is seen in a file photo. Goldman predicts Phoenix home prices will fall another 12.9% this year

‘That [national] the decline should be small enough to avoid widespread stress on mortgage lending, with a sharp increase in nationwide foreclosures looking unlikely,” the report said.

This means that the boom-to-collapse collapse should not be half as bad as the 2008 collapse, except perhaps in the southwest and the Pacific coast.

The investment bank also offers a ray of hope as it predicts the housing market will not experience a long-term downturn like it did in 2008.

Goldman forecasts an overall rise in house prices of around 1% in 2024.

“Assuming the economy stays on a soft landing path, avoiding a recession, and the 30-year fixed mortgage rate drops to 6.15% by the end of 2024, growth in property prices homes will likely move from depreciation to below-trend appreciation in 2024,” the bank said.

Mortgage rates remain unpredictable – peaking at 7.37% in November – the average 30-year fixed mortgage fell to 6.09% after better than expected inflation figures.

The sharp rise in mortgage rates over the past year has strangled the housing market, with sales of existing homes falling for 10 straight months to the lowest level in more than a decade.

A graph showing the evolution of 30-year mortgage rates in the United States between September 2022 and January 2023

A graph showing the evolution of 30-year mortgage rates in the United States between September 2022 and January 2023

A sale sign sits in front of a home in Wyndmoor, Pennsylvania, Wednesday, June 22, 2022

A sale sign sits in front of a home in Wyndmoor, Pennsylvania, Wednesday, June 22, 2022

Although house prices have retreated as demand has waned, they are still nearly 11% higher than a year ago.

Higher prices and doubling mortgage rates have made buying a home much less affordable for many people, but recent rate cuts may give some buyers new hope.

At its last meeting of 2022, the Federal Reserve raised its rate by 0.50 percentage points, its seventh increase last year. That pushed the central bank’s key rate into a range of 4.25% to 4.5%, its highest level in 15 years.

Although consumer inflation has fallen for six consecutive months, Fed officials have signaled that they may raise the central bank’s main borrowing rate by another three-quarters of a point in 2023, which would be in a range of 5% to 5.25%.

30-year mortgage rates generally follow movements in the 10-year Treasury yield, which lenders use as a guide for loan pricing.

Investors’ expectations about future inflation, global demand for US Treasuries, and what the Federal Reserve is doing with interest rates can also affect the cost of borrowing a home.

The rate for a 15-year mortgage, popular with those refinancing their homes, also fell this week, to 5.28% from 5.52% last week. It was 2.79% a year ago.