They say history tends to repeat itself. That’s what’s happening in the housing market right now, but in some ways, it’s actually worse than the catastrophic crash of 2008, according to Goldman Sachs analysis.
Mortgage rates at highest levels in more than two decades Nearly 7.5%House prices continue to climb due to decades of underconstruction and the resulting housing shortage. Q2 2023, The average sales price in the U.S. is nearly $500,000Home prices nearly doubled when the housing bubble burst in 2008, according to the Census Bureau.
Goldman Sachs managing director Roger Ashworth looks at the housing crash that triggered the Great Recession 16 years later and finds most things are in a “much better position” — except affordability .
“While housing and broader consumer fundamentals are in a stronger position today, incremental buyer affordability is worse than at the pre-collapse peak of 2006,” he wrote in a note. Credit Strategy Research Paper Published on Tuesday. “Absent any negative shock to the wider economy, leading to an oversupply of homes on the market or exacerbating higher unemployment, we still expect house prices to rise slowly.”
Wall Street banks aren’t the only ones offering a scathing assessment of housing costs.Atlanta Fed finds housing affordability has worsened beyond 2006 levels Housing affordability monitoring, which tracks factors including median home price, median income, mortgage interest rate, monthly principal and interest payments and the average mortgage payment as a percentage of income. As of July 2023, housing affordability has decreased by nearly 8 percentage points annually, but is still more than 31 percentage points below the generally affordable threshold.
In a paper titled “The U.S. housing market collapse has entered its not-so-sweet 16,” Ashworth predicts that we will see home prices rise 1.8% by the end of this year and 3.5% by the end of 2024. Ashworth has been studying mortgage-backed securities and real estate markets for more than a decade, most recently Citibank.He reportedly joined Goldman Sachs in July Electronic finance careers.Ashworth did not respond of wealth Require Further comments on the research paper.
While there are still reasons to worry about housing affordability, since 2008 Fannie Mae and Freddie Mac were placed Supervision The key challenges facing today’s real estate market are different from those in the past.
First, two decades ago, products like zero-down mortgages and cash withdrawals from home equity helped more Americans buy homes, pushing up real estate prices during the last crisis. Today, with far fewer homes for sale, prices are high.Indeed, housing Housing inventory levels near historic lows. The average number of homes on the market fell 60% between September 2018 and September 2023, to below 700,000 active listings, According to Realtor.com.
“The current low housing inventory helps explain why home prices appear to be resilient despite the challenging affordability environment we face,” Ashworth writes. But between 2004 and 2009, the supply of homes began to grow , while home price appreciation slowed, he noted: “Not only has the supply of homes been high for several months, but the ‘shadow’ inventory of homes for borrowers facing foreclosure has also been growing, even before job losses began.”
Today, we’re seeing mortgage rates and home prices rising in tandem, creating a brutal storm for potential homebuyers who find themselves priced out of their homes. During the last crash, higher loan payments started to translate into lower home prices, but that’s not the case today.
“Unlike at the turn of the century, home prices today are rising along with mortgage rates, largely due to a lack of inventory,” Freddie Mac chief economist Sam Khater said in a note. statement Released on September 29th. “These headwinds are causing both buyers and sellers to hold on and wait for better conditions.”
Unfortunately for those would-be buyers, Ashworth and many other real estate economists and experts don’t expect better deals anytime soon. Goldman Sachs is sticking to its forecast that home prices will continue to climb next year if the supply of homes doesn’t increase, unemployment rises or mortgage rates fall.
“Now that interest rates have reversed course and are much higher, incremental homebuyer affordability is more of a challenge than during the 2004-07 period,” Ashworth wrote. “We still expect house prices to rise slowly over the medium term.”
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