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Goldman Sachs Estimates a Peak to Trough Housing Decline of a Mere 5.7 Percent

Let’s discuss the peak-to-trough housing decline estimate by Goldman Sachs and the 2023 forecast by Realtor.Com.

CPI, OER, and Rent from the BLS. Case-Shiller home prices via St. Louis Fed, chart by Mish.

Chart Notes

OER stands for Owner’s Equivalent Rent. It it the price one would pay to rent a home, unfurnished and without utilities.

Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020. The Fed ignored all three occasions hoping to make up for “lack of inflation”. The Fed “succeeded” in producing inflation beyond it’s wildest dreams.

There is a two-month lag in Case-Shiller reporting. The latest report is for March and that represents sales primarily made in January and February.

Goldman Sachs Estimates

Goldman Mortgage Rate Forecast

Realtor.Com View

“#NEW http://Realtor.com’s forecast model expects the median existing home sales price to fall -0.6% in 2023. That’s a downward revision.”

Ten City View

Price Declines to Date

Price Decline Key Points

Home prices generally peaked in June or July of 2022. 

Chicago is the 10-city exception. Chicago hit a new high in March. 

However, Chicago barely participated in the post-pandemic bubble as shown in the second chart.

My View

A peak-to-trough decline of only 5.7 percent with mortgage rates at 6.4 percent seems like fantasyland material.

Existing Home Sales Rise Slightly in May, Sales Mixed

Existing home sales data via St. Louis Fed.

On June 22, I commented Existing Home Sales Rise Slightly in May, Sales Mixed

Key Highlights

Existing-home sales recorded a minor gain of 0.2% in May to a seasonally adjusted annual rate of 4.30 million.

Sales retreated 20.4% from one year ago.

The median existing-home price for all housing types in May was $396,100, a decline of 3.1% from May 2022 ($408,600). Prices grew in the Northeast and Midwest but fell in the South and West.

The median price of existing homes is down 3.1 percent from a year ago. Realtor.com expects a decline of 0.6 percent.

The Starter Home Is No More, Even in Second Tier Markets

On June 7, I noted The Starter Home Is No More, Even in Second Tier Markets

in 100 out of 100 cities the average renter could not afford to buy a lower-third priced home.

The GS Story

Despite homes being the most unaffordable in history, despite mortgage rate near 7 percent, despite the Fed fearful of cutting rates and stoking more inflation, and despite a huge boomer die-off coming and implied liquidations, home prices will not decline more than they already have.

This is called revising your forecast, forever into the future, based on extreme valuations and actions you see today.

I’ll Take the Under

On the over-under line, I will take the way under on the G/S peak to trough forecast and the way under on the Realtor.Com forecast for 2023 as well.


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