Home prices will fall in these once red-hot cities as supply begins to choke demand.

  • According to Goldman Sachs, home prices in Austin, Seattle, Phoenix and San Francisco will fall in double digits.
  • Analysts write in a note that inventories have increased significantly in these four cities, and supply exceeds demand.
  • Nationwide, the outlook for house prices is less bleak, with Goldman seeing a 6.1% decline.

Of the country’s 25 largest metropolitan areas, four stand out with especially dim housing forecasts, according to Goldman Sachs.

By the end of 2024, home prices will be down 19% in Austin, 12% in Seattle, 16% in Phoenix and 15% in San Francisco compared to late 2022 levels, the bank said in a statement Thursday.

While the overall housing market remains tight, these four cities are seeing strong supply growth with supply exceeding demand, analysts said.

“Instead of pointing to what will happen in the country, we view the emerging oversupply in the Pacific Coast and Southwest markets as a reflection of local problems, in particular, very low levels of availability, pandemic-related distortions, and (in some markets) high concentration of employment in the technology industry,” said Goldman.

Nationwide, the outlook for house prices is less bleak. Goldman is forecasting a 6.1% decline in 2023 as mortgage rates rise again, recently returning to 6.5%.

In October, the 30-year fixed rate hit 7% for the first time since 2002 as bond yields continued to climb amid an aggressive Federal Reserve rate hike cycle.

Mortgage rates fell nearly 6% earlier this month but have risen sharply since then as hints of sticky inflation dashed Fed hopes for policy easing.

At the moment, housing affordability is at an all-time low, researchers at Goldman Sachs have found. Part of the problem is higher mortgage rates. But inventories also remain below pre-pandemic levels and homeowner vacancy rates are at an all-time low, propping up prices.

The median existing home price for all housing types was $359,000 in January, up 1.3% from the same month in 2022.

“Even if every home under construction is completed and put up for sale immediately,” explained Goldman Sachs, “monthly supply of homes (ratio of inventories to annual sales) will still be below the historical average.”

But potential homebuyers may see some relief in affordability as demand eases. The National Association of Realtors said sales of existing homes have been falling for 12 straight months, hitting their lowest level since 2010.

“Home sales have bottomed out,” NAR chief economist Lawrence Yun said Tuesday, adding that buyers are also beginning to gain more purchasing power and are potentially benefiting from lower home prices. “Houses that have been on the market for more than 60 days can be bought for about 10% less than the original list price.”

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