Goldman Sachs expects home values to fall by 25% through 2023

Goldman Sachs expects home values to worsen through 2023 due to continued skyrocketing interest rates and declining housing prices.

The firm said to clients earlier this month that four US cities will suffer the most catastrophic dips, drawing comparisons to the 2008 housing crash.

San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona are going to see noticeable increases before drastic decreases of more than 25%.

These declines would be similar to those seen during the Great Recession in 2008. According to the S&P CoreLogic Case-Shiller index, home prices in the U.S. fell by 27% at the time.

According to the New York Post, our revised forecast for 2023 reflects our belief that interest rates will remain at elevated levels longer than currently priced in, with 10 year Treasury yields peaking in 2023, according to Goldman Sachs strategists. The national decline should be small enough to avoid broad mortgage credit stress, with a sharp rise in foreclosures nationwide seemingly unavoidable, according to Goldman Sachs. Overheated housing markets in the Southwest and Pacific Coast, such as San Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA, will likely struggle with peak-to-trough declines of over 25%, presenting localized risk of higher debt for mortgages originated in 2022 or late 2021. The bank says these cities will suffer the lowest prices this year because they have become too detached from fundamentals during the COVID - 19 pandemic.

Goldman Sachs believes that many Northeastern, Southeastern, and Midwestern markets could see milder corrections.

Home prices are expected to drop slightly in New York City -- 0.3% and Chicago -- 1.8%, while Baltimore 0.5% and Miami 0.8% will see higher prices, the firm said.

The average 30 year fixed mortgage rate was 7.37% at its peak in November.