Goldman Sachs says home sales have taken a larger dip than previously reported, a trend experts say could continue further into the year.
Researchers said in the new report that new and existing home sales saw a nearly 30 percent drop from the peak seen in October 2020 amid higher mortgage rates and a reversal in what was described as several “pandemic-related preference shifts.”
During the pandemic, the nation saw a boom in household formation and demand for second homes, researchers noted. But they added that multiple areas that once saw “outsized increases in home sales and building permits in 2020 and 2021” are currently seeing disproportionate declines.
“The outlook for demand continues to benefit from a tight labor market and a continued demographic tailwind from millennials passing through their prime home-buying years,” they wrote.
Researchers say home sales could fall even further in the months ahead due to multiple factors, including what they listed as a “sustained reduction in affordability, waning pandemic tailwind, and recent decline in purchasing intentions.”
At the same time, researchers say supply of existing homes is “well below pre-pandemic levels.”
“The outlook continues to offer no quick fixes for the housing shortage, and the roughly 10 percent reduction in building permits from the peak, 20 percent reduction in housing starts, and delayed completion times for new homes are likely to keep supply constrained through at least the end of next year,” they write.
A model included in the report forecasts a potentially sharp slowdown for home price growth in the coming quarters and for “home prices to be flat” next year, as what researchers described as a current imbalance between supply and demand levels out.
Researchers said housing downturns have often gone hand-in-hand with economic recessions in the past, which they note “led to an influx of housing supply as unemployment rose and individuals were forced to sell their homes.”
“However, an influx of supply from this channel seems unlikely this cycle: the labor market remains robust (and likely will, even in a mild recession) and, as we wrote last week, household balance sheets are extremely strong and loan delinquency rates are likely to remain historically low,” they added.