The housing sector is in something of a recession, and an economist at Goldman Sachs says the downturn will continue — and eventually slow down the still-rapid pace of house price increases.
Goldman Sachs economist Ronnie Walker said housing starts have dropped 20% from their peak and existing home sales have skidded by 30%.
Mortgage rates as high as 5.8% — they were just 3.2% in January — are partly to blame. Sales and permits have fallen more sharply in regions where they increased the most in the earlier part of the pandemic, suggesting a retreat from the pandemic-related boost to housing, said Walker.
Walker says existing home sales will fall another 12% by the fourth quarter, and new home sales will be flat. The latest survey from the Conference Board says plans to buy a home within six months has dropped to the lowest level since 2015.
Even with demand on the way down, there’s still a supply imbalance. There’s a growing backlog of incomplete units that has pushed up the number of new homes available for sale, due to both supply-chain disruptions and labor shortages. And, per Zillow data, the reduction in demand has also been met by fewer owners putting their homes for sale.
House price growth on a quarterly basis will slow to 8.5% in the third quarter and 3% in the fourth quarter, which will take the year-over-year rate down to 14% by the end of the year. Next year, Walker says home price growth will stall completely.
The latest S&P CoreLogic Case-Shiller 20-city composite, which covers the three months ending June, showed a 19% year-over-year rise in house prices.