Weakening demand is shrinking an imbalance with housing supply and likely means that price growth will slow sharply over coming quarters, economists led by Jan Hatzius said in a research note on Tuesday.
“We expect home price growth to stall completely, averaging 0% in 2023,” Goldman said. “While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.”
Goldman’s housing assessment comes just days after Federal Reserve Chair Jerome Powell issued a fresh warning to investors that interest rates are heading higher and will stay there “for some time.”
In its analysis, Goldman said a sustained reduction in affordability, waning pandemic tailwind and a recent decline in purchasing intentions all point to weakening home sales.
“Higher mortgage rates and reduced affordability are not the only drag on housing,” the Goldman economists said.
“Existing home sales and building permits have fallen more sharply this year in regions where they increased the most in the earlier part of the pandemic, suggesting that the recent declines have also reflected the partial retreat of a pandemic-related boost to housing demand.”
Other factors at play include housing inventories starting to normalize and starts beginning to rebound, though supply constraints will limit completions, it added.
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