Maria Irene

The world is currently experiencing a housing market correction, according to Goldman Sachs economists, with the United States faring the best among major economies. This development comes as mortgage rates rise, continuing to put pressure on housing markets in countries such as New Zealand, Canada, and the United States. Home sales and prices are expected to remain subdued this year across most G10 countries, as housing activity pulls back from the surge witnessed during the pandemic.

New Zealand and Canada have seen significant home price declines of 16.2% and 15.8% respectively since their 2022 peak, while US national home prices have only dropped by 2.7% from their summer peak in the same year. The differing impacts on home prices can be attributed to the prevalence of fixed mortgage rates in the US, which insulates borrowers from mortgage rate shocks and discourages them from listing their homes due to sudden financial distress.

Limited housing supply in many markets is expected to restrict further declines in home prices. Goldman Sachs economists predict that by the time home prices reach their lowest point, countries like New Zealand and Canada will have experienced a 19% decrease, while US home prices are projected to experience a peak-to-trough decline of just 5%. This would be the second largest US home price correction of the Post-WWII era, but pale in comparison to the 26% drop observed between 2007 and 2012.

While US home prices may decline by 5% from their 2022 peak, they would still be up 34.1% from March 2020 levels. However, the global banking sector’s distress could introduce uncertainty by leading to tightened lending standards and negating the benefits of future mortgage rate declines.

Economists from Goldman Sachs anticipate that the combination of reduced housing activity and falling home prices will have a negative impact on the economy. The full effects of higher borrowing costs on housing affordability have yet to be felt. The timing of these impacts varies worldwide, as differences in mortgage markets across countries can either hasten or slow down their onset. In countries with a larger share of fixed-rate mortgages, such as the US, the impacts of rate increases tend to be delayed.

Between the first and fourth quarters of 2022, US private residential fixed investment (housing GDP) fell by 12.3%. However, this housing sector weakness has not led to a recession. Economists from Goldman Sachs argue that the housing market’s response to rate hikes has been instrumental in slowing overall growth below the trend without causing a recession or a rise in delinquencies in most major economies.


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