The real estate crisis could worsen further this year, according to Goldman Sachs (GS).
Data from the investment bank shows that of the 25 largest metropolitan areas in the United States, four cities are struggling with excess supply, signaling a bumpy forecast ahead.
While overall housing inventory 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 South West have been hit by oversupply “reflecting local challenges, in particular very low levels of affordability, pandemic-related distortions and, in some markets, high concentration jobs in the tech industry,” Goldman noted.
Separately, in a report by Redfin (RDFN), cities like San Francisco, Oakland and San Jose each saw home values decline between 3% and 7% in the second half of 2022.
The reason: These cities used to be the most expensive markets in the country, which by default means home values are more likely to fall. Other reasons: the massive exodus of residents fueled by the pandemic and technological layoffs.
Nationally, the housing outlook looks less dire. The bank expects house prices to fall 6.1% in 2023 as mortgage rates head towards 6.5%.
However, in this context, there is a potential risk as supply remains tight despite the arrival on the market of new houses under construction.
“On the net, this implies a moderate impact of completions on the current balance of housing supply and demand and, ultimately, prices,” the bank said, “Even though every home under construction were completed and put on the market immediately, monthly housing supply (the ratio of inventory to annual sales) would still be below historical averages.”
In January, builders continued to slow home construction. Housing starts fell 4.5% to 1.31 million at an annualized rate, down 21.4% from a year ago, the Commerce Department said Feb. 16.
Other data from the National Association of Realtors indicates existing home sales are down, 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 should act as an additional buffer” for the supply outlook.
Although home buying activity has become fragile as the 30 fixed mortgage rate marches higher, the problem remains the oversupply of multi-family units.
Over the past six months, about 40% of total housing starts have been multi-family units, according to Goldman. The company noted, however, that most of these units are taking longer to build, which could challenge the medium to long-term prospects for rental properties.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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