Goldman Sachs, a leading global investment banking, securities and investment management firm, offered an ominous outlook for the global economy in 2023. In addition to forecasting a “35% probability” [for] a recession,” the firm also warned of steep declines in housing values.
In an unusual move, Goldman Sachs recently alerted their clients that they “expect home values to tank in four major markets across the U.S. amid worsening economic conditions,” according to The Daily Wire.
The four red zones noted by the financial firm are San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona.
Goldman Sachs warns that housing markets in those areas could “see a crash on the level of the 2008 housing crash.”
Fox News reported the housing market in those regions could drop by 25% in 2023.
An excerpt from a recent Godman Sachs report read:
“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).”
“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely.”
“That said, overheated housing markets in the Southwest and Pacific coast, such as San Jose MSA, Austin MSA, Phoenix MSA, and San Diego MSA will likely grapple with peak-to-trough declines of over 25%, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021.”
Goldman Sachs also warned that New York City and Chicago housing markets would likely see marked declines, but added they expect the Baltimore and Miami markets to report modest gains.
The report concluded:
“Assuming the economy remains on the path to a soft landing, avoiding a recession, and the 30-year fixed mortgage rate falls back to 6.15% by year-end 2024, home price growth will likely shift from depreciation to below-trend appreciation in 2024.”
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