By Bill Davis

January 15, 2023

Austin, housing market, Miami, Real Estate

The Fed's ongoing inflation fight—which saw mortgage rates spike from 3% to 6% in 2022—has set off the second biggest home price correction of the post-WWII era.

On one hand, the 2.4% drop in U.S. home prices seen between June and October is small relative to the housing crash's 26% national home price decline from the top in 2007 to the bottom in 2012. On the other hand, the ongoing home price correction might have a lot of gas left in the tank.

Look no further than a Goldman Sachs paper put out last week with the title “Getting worse before getting better.” Researchers at the investment bank argued in the paper that the national home price correction will continue through 2023.

“We are lowering our 2023 forecast for year-over-year depreciation in the Case-Shiller Home Price Index to -6.1% from -4.1% previously. This would represent an aggregate peak-to-trough decline of roughly 10% in U.S. home prices through the end of this year from June 2022,” write Goldman Sachs researchers.

Through October, the lagged Case-Shiller National Home Price Index has registered a -2.4% national home price decline. However, researchers at the investment bank estimate once we get the November and December readings, we'll see national home prices are already down -4%. That means we might already be half-way to Goldman Sachs' estimated 10% peak-to-trough decline.

Nationally, a 10% peak-to-trough decline in U.S. home prices—which climbed 41% between March 2020 and June 2022—shouldn't do too much financial damage, says Goldman Sachs. However, the firm says some regional markets won't be so lucky.

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