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2008-style housing crash expected in 4 cities, top US investment bank says: Report

A housing complex for 44 formerly homeless veterans built by the nonprofit Soldier On on the campus of the Edward P. Boland Veterans Affairs Medical Center in Northampton, MA, March 18, 2022. (Will Katcher/MassLive/TNS).
January 27, 2023

Goldman Sachs, one of the leading global investment banks, is reportedly predicting the housing market could bottom out in four cities in 2023, seeing prices fall at a by percentages not seen since the 2008 recession.

According to a note to clients earlier this month, obtained by the New York Post, the national U.S. housing market is heading into a decline, with Austin, Texas; Phoenix, Arizona; and San Jose and San Diego, California set to suffer the worst of it. According to the New York Post, these four cities could see housing prices fall by more than 25 percent.

Those dips could rival the kind seen around the U.S. in 2008, when Home prices across the United States fell around 27 percent. The housing crash coincided with a recession.

“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 reportedly said of the broader U.S. housing market.

“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%, presenting localized risk of higher delinquencies for mortgages originated in 2022 or late 2021,” the investment bank added.

Goldman Sachs predicted housing markets in New York City and Chicago, Illinois would see some minor price drops of about -0.3 percent and -1.8 percent respectively. In Baltimore, Maryland and Miami, Florida, the firm predicted some modest price increases of +0.5 percent and +0.8 percent respectively.

In some cases, Goldman Sachs is making more positive predictions about the U.S. economy than other economic researchers.

Goldman Sachs predicted the U.S. will narrowly avoid a recession. Goldman Sachs economists put the odds of a recession in 2023 at 35 percent, while a recent Wall Street Journal survey put the median prediction of a recession at 65 percent.

Goldman Sachs also estimated U.S. gross domestic product (GDP) growth fell from 2.2 percent to 1 percent between January and November of 2022. By contrast, the consensus point reached by economists estimated GDP fell from 2.5 percent to .4 percent during that same time period.