As Wall Street braces for its biggest round of layoffs since the 2008 mortgage crisis, Goldman Sachs makes some bold predictions for the U.S. housing market.
In a note to clients obtained by Fox Business, the New York-based investment banking giant names four cities likely to see boom-and-bust declines of more than 25 percent: San Jose, San Diego, Phoenix and Austin. For context, during the Great Recession, home prices across the country fell by about 27 percent, according to the S&P CoreLogic Case-Shiller index.
“This [national] decline should be small enough as to avoid broad mortgage credit stress, with a sharp increase in foreclosures nationwide seeming unlikely,” Goldman Sachs writes. “That said, overheated housing markets in the Southwest and Pacific coast, such as San Jose MSA, Austin MSA, Phoenix MSA and San Diego MSA will likely grapple with peak-to-trough declines of over 25 percent, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021.”
These cities will suffer the lowest prices in the coming year because they became too detached from fundamentals during the COVID-19 pandemic housing boom, Goldman says.
Of the four markets, Austin is perhaps the most accustomed to doomsday predictions. A year ago, Zillow researchers named the Texas capital the nation’s second-most overpriced housing market, after Boise.
The Austin market is “arguably the largest housing bubble in America based on the fundamental data,” Reventure Consulting CEO Nicholas Gerli said in May. While it takes about five years for a market to crash, Gerli predicted a 30 percent to 40 percent decline in home prices in Austin over the next three years.
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The state’s supply of homes for sale increased by nearly 30 percent from June to July, according to data from the Texas A&M University Real Estate Research Center. Of Texas’ major metros, Austin had the highest rate of increase, rising 33 percent from 1.8 to 2.4 months of inventory.
At the same time, the Texas capital was seeing ominous home price drops. Year-over-year, pending sales were down 32 percent in June, after a 12 percent decline in May and a 5 percent drop in April.
The summer of ’22 also delivered doomsday predictions for North Texas. Moody’s chief economist Mark Zandi specifically named Sherman as one of the most “juiced-up” regional housing markets in the nation — the only Texas market on the list.
After the median home price in Austin hit an all-time high around $550,000 between April and May, it slumped to $537,000 in June. At the time, this trajectory suggested a growing slowdown in one of the nation’s most overheated housing markets. Austin’s median home price continued to decline for six consecutive months, according to Zillow research.
Meanwhile, Goldman, Morgan Stanley, Credit Suisse and Bank of New York Mellon have slashed more than 15,000 jobs combined over the past few months, according to the Financial Times.
Goldman Sachs made plans to shed 3,200 employees, about 6 percent of its workforce in New York. The firm is planning a $500 million office complex in Dallas, and CEO David Solomon has been stoked about recruiting here, according to his remarks to the Dallas Citizens Council last month.
“One of the things that makes Texas so incredible is you have an incredible secondary education system here, both public and private,” Solomon said. “It creates an enormous pipeline of talented young individuals. People come down here to go to school, and they actually want to stay.”
— Maddy Sperling