US home price growth will stall COMPLETELY by 2023, Goldman Sachs warns

Home price growth is expected to stall completely across the US in 2023 as buyer demand wanes and the market remains oversaturated with inventory.

The forecast was issued by economists at Goldman Sachs who said some regions are very likely to see prices drop, though not by a large amount. The average home price in the US in Q2 reached $525,000.

‘We expect home price growth to stall completely, averaging 0% in 2023,’ Goldman said in a study led by economist Jan Hatzius, ‘While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.’

The study found that the recent period of soaring home prices coupled with the waning of the pandemic-born demand boom have driven homebuyers from the market, according to Bloomberg.

‘Existing home sales and building permits have fallen more sharply this year in regions where they increased the most in the earlier part of the pandemic,’ Goldman said, ‘Suggesting that the recent declines have also reflected the partial retreat of a pandemic-related boost to housing demand.’

Average house prices in the US have steadily increased since the pandemic, and rose sharply from the beginning of 2021 through Q2 of 2022.

In 2021 average home sale prices increased from $418,600 in Q1 to $440,600 in Q2, then $473,000 in Q3. This year they have climbed from $514,100 in Q1 to $525,000. in Q2 –  but analysts think that growth is now leveling off, and others have even forecast subsequent falls. 

The research comes as the Federal Reserve has warned that interest rates – driven up in the battle against soaring inflation – are likely to continue to climb and remain high ‘for some time,’ Federal Reserve Chair Jerome Powell said.

Goldman’s forecast reflects predictions from other economists, including one from Moody’s Analytics chief economist Mark Zandi who found prices will not just plateau but could also drop by as much as 20% if the recession deepens, according to Fortune.

The news is particularly dire for people who have purchased homes in what Fortune terms ‘bubbly’ markets, with Boise in Idaho, Charlotte in North Carolina and Austin in Texas all named the most overvalued markets.  

But a total of 180 other areas across the US have property deemed overvalued, many of them highly-desirable.

They include LA, Orlando, Seattle and Indianapolis, where property is all estimated to be 30 percent overvalued. 

Homes in Houston are around 34.5 per cent overvalued, while properties in Montana are 25 per cent overvalued.

Picturesque Bend in Oregon – regularly voted one of the United States’ best places to live – has homes that are 43.8 per cent overvalued, according to Moody’s, with Billings in Montana 25 per cent overvalued.

A study from Florida Atlantic University also reinforced the Goldman prediction, finding that housing premiums -the price homes were expected to sell at verses the price they actually sold for – declined in 27 major metro areas across the country.

‘This is a sign that places are reaching the top of the cycle and prices are going to start normalizing again now,’ said Florida International University economist Ken Johnson.

The exception to that rule seemed to be Florida, with the study finding premiums in nearly every city in the state increased over the summer.

The predictions come weeks after the US Central Bank hiked the benchmark interest rate to 2.5 per cent, with another increase to 3.4 per cent expected by the end of the year as the Fed tries to tame inflation.

Those interest rate hikes are expected to plunge the US deeper into recession, and will lower the cost of property as it becomes too expensive for many to get a mortgage, cratering demand.