According to Goldman Sachs (GS), the slump in the housing market could become even worse this year.
Investment bank data shows that of the 25 largest metropolitan areas in the US, four cities are struggling with oversupply, pointing to a bumpy forecast ahead.
While overall housing stock still remains tight, these four cities are seeing more homes for sale now than in January 2020. By the fourth quarter of 2024, the company expects home prices to fall 19% in Austin, 16% in Phoenix, 15% in San Francisco and 12% in Seattle.
Regionally, the West Coast and Southwest have been hit by oversupply “due to local challenges, particularly very poor affordability, pandemic-related disruptions and high concentration of technology industry employment in certain markets,” Goldman noted.
Separately, in a report from Redfin (RDFN), cities such as San Francisco, Oakland and San Jose have each experienced falling home values between 3% and 7% in the second half of 2022.
The reason: Those cities were the most expensive markets in the entire country, which by default means home values have more room to fall. Other reasons: the pandemic-induced mass exodus of residents and layoffs in the technology sector.
Nationally, housing prospects seem less bad. The bank expects house prices to fall by 6.1% in 2023, while mortgage rates are heading towards 6.5%.
However, against this background there is a potential risk as supply remains tight despite new homes under construction entering the market.
“On the net, this implies a muted impact of completions on the current equilibrium between housing supply and demand and ultimately on prices,” the bank said. The supply of housing (the ratio between stock and annual turnover) would still be below historical averages.”
In January, builders continued to slow housing construction. Housing starts fell 4.5% to 1.31 million year-on-year, down 21.4% from a year ago, the Commerce Department said on Feb. 16.
Other data from the National Association of Realtors suggests that existing home sales are falling, while government data points to an unexpected increase in new home sales.
The bank notes that the “gradual recovery in home sales in the second half of the year should act as an additional buffer” to the supply outlook.
While home-buying activity has become shaky as 30-fixed mortgage rates rise, the problem remains the oversupply of multi-family homes.
In the past six months, about 40% of total housing construction has been for multifamily homes, according to Goldman. However, the company noted that most of these units are taking longer to build, which could jeopardize the medium to long-term outlook for rental properties.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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