Goldman on the hampered housing market: 'Further to Fall'

·Executive Editor

Updated Tue, Aug 30, 2022, 3:09 AM2 min read

In this article:

Rising interest rates are thwarting the U.S. housing market's momentum, hammering many stocks tied to the fortunes in the sector.

Shares of Toll Brothers and KB Home are down 15% and 22% in the last six months alone — with the former pressured by a weak second quarter and outlook for growth earlier in August — while the SPDR S&P Homebuilders ETEF has shed 12% in the last six months.

Goldman Sachs Chief Economist Jan Hatzius asserted that further housing pressure is likely, writing in a new note ominously titled: "Housing Downturn: Further to Fall."

Here are Hatzius' two calls on housing.

On home sales:

"The sustained reduction in affordability, waning pandemic tailwind, and recent decline in purchasing intentions suggest that home sales are likely to fall further on net: we forecast existing home sales of 4? million in Q4 (seasonally adjusted annualized rate; -12% vs. July) and new home sales of ? million (flat). This lowers our residential fixed investment growth forecast to -15% in 2022 and 0% in 2023 (both Q4/Q4), vs. -13% and +1?% previously."

A "For Sale" sign is posted outside a residential home in the Queen Anne neighborhood of Seattle, Washington, U.S. May 14, 2021. REUTERS/Karen Ducey (Karen Ducey / reuters)

On home prices:

"Our model suggests that home price growth will slow sharply in the next couple quarters (+8?% quarter over quarter annualized rate (AR) in Q3, +3% quarter over quarter AR in Q4, corresponding to +14% Q4/Q4 in 2022), as the imbalance between supply and demand continues to shrink, mostly through lower demand. Thereafter, we expect home price growth to stall completely, averaging 0% in 2023. While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely."

A chart in Hatzius' note says it all:

The industry vibe in housing:

Existing home sales fell for the sixth consecutive month in July, the National Association of Realtors stated. Sales dropped 5.9% from June and 20.2% from a year ago. The median existing home sales price rose 10.8% year over year to $403,800 but was off $10,000 from a record high in June.
The Commerce Department, meanwhile, reported that sales of new U.S. single-family homes tanked 12.6% in July. At 511,000 units in the month, new home sales were at the lowest level since January 2016.