Housing Market Collapse: How soon will it happen and which cities could be affected the most?

Housing Market Collapse: How soon will it happen and which cities could be affected the most?

High mortgage rates, inflation, and low supply have made homeownership difficult lately. While home prices appear to be dropping, some experts warn that a potential housing market crash could be on the horizon — but not all areas will be the same.

Strategists at Goldman Sachs wrote on Jan. 23 that the investment bank expects "a peak-to-bottom decline in national home prices of about 6% and for prices to stop falling around the middle of the year."

"On a regional basis, we expect larger declines across the Pacific Coast and Southwest regions - which saw the largest inventory increases on average - and more modest declines across the Mid-Atlantic and Midwest - which maintained greater affordability throughout a couple of the past two years."

On another note, the investment bank said some cities would be particularly vulnerable: San Jose, California; Austin, Texas; Phoenix, Arizona; and San Diego, California. According to the note, these cities are likely to "struggle with peak-to-trough declines of more than 25%."

According to the New York Post, "Such declines would match those seen some 15 years ago during the Great Recession."

However, Goldman Sachs added that this national decline "must be small enough to avoid pressures of broad mortgage credit, with a sharp increase in mortgage foreclosures nationwide looking unlikely."

Goldman Sachs also said it had revised its outlook for 2023, believing interest rates will remain at elevated levels. In turn, it raised its forecast for the 30-year fixed mortgage rate to 6.5% for the end of 2023.

National Association of Realtors (NAR) Chief Economist Lawrence Yoon explained in Outlook 2023 that the home inventory is expected to remain tight in 2023, with housing starts below historical averages and fewer homeowners willing to sell.

However, Yoon added that he sees "many signs of hope early next year."

While current conditions do not point to a housing market crash, some factors could be driving the trend, according to US News & World Report. These include a significant increase in unemployment, a prolonged housing shortage, and a decline in aggregate demand.

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