The U.S. entered into its first housing downturn of the post–Great Financial Crisis era. But the worst still awaits.
What can we expect in 2023:
- The U.S. is now entering its first housing downturn of the post-Great Financial Crisis era.
- According to Goldman Sachs, don't expect any recovery until 2024 at the earliest.
- Goldman Sachs latest forecast of the U.S. housing market predicts an 8.9% housing GDP drop this year and a 9.2% drop in 2023.
- The economic consequences of 6% mortgage rates in 2022 is more severe than the 5% rates of 2018.
- Predictions for home sales, according to Goldman Sachs:
- 22-30% drop in new home sales in 2023
- 17-30% drop in existing home sales in 2023
- Why the downturn? Two main reasons. First, the Fed Reserve intentionally policy to fight inflation and slow down prices and housing market by raising interest rates. Second, the pandemic brought about the largest spike in household formation in history. Now that life is back to normal, that trend has stopped and will likely reverse.
- How will the housing downturn impact home prices? There is great debate here amongst analysist. Goldman thinks price growth will be flat in 2023, but other major analysts, who were right in predicting the last housing crash think that overvalued areas, like Florida could see 10-15% price drops. If there is a recession, price drops could go as high as 20-30%.
- Will there be a flood of inventory due to homeowners rushing to sell their homes? Yes and No. On major difference between the current housing market and the last housing crash is that the job market remains strong. People continue to make money and are able to pay mortgages. As long as that holds we may only see slightly above normal supplies. However, one factor working in the opposite direction is that home prices and monthly mortgages are at historic highs. At what point will the mortgage burden be too much to bear for consumers? That is the wildcard.
There is quite a bit of guessing go on and you could also argue that many of these financial analysts are mixing sound research with corporate propaganda. This housing downturn won't be like the last housing crash because the job market is strong and there is not the sam level of toxic debt in the marketplace. But those factors have been replaced by historically high mortgages and household debt levels. At some point something has to give. I believe we will see a 10-20% price decline in many parts of Florida in 2023 and an increase to slightly above average, pre-pandemic foreclosure levels, along with a continuous 10+ month inventory in the housing market.