The housing market slowdown at the hands of rising interest rates and an inflation-embattled consumer is only just getting started, according to Goldman Sachs Chief Economist Jan Hatzius.
“Housing I think still has a significant amount of weakness ahead,” Hatzius told Yahoo Finance Live at the Goldman Sachs Communacopia + Technology Conference. “The indicators there have continued to come in on the weaker side. So while the consumer might be doing a little bit better because of lower inflation, I think housing is going to be pretty soft.”
Signs of a sizable housing slowdown have picked up in recent months as the 30-year mortgage rate has climbed to near 6% to a level not seen since 2008.
Existing home sales fell for the sixth consecutive month in July, according to the National Association of Realtors. 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 slightly down 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.
Stocks tethered to the outlook for housing have also been hammered.
Homebuilder stocks Toll Brothers and KB Home are down around 13% and 25% in the past six months, under-performing the S&P 500’s 4% decline. Home Depot’s stock is off by around 9% in the last six months, while rival Lowe’s has more than 10%.
Hatzius’s work suggests pressure on housing prices in key markets is likely to accelerate.
“So we don’t have national nominal house price declines in our forecast,” Hatzius added. “But we do think that it will be the most pandemic-favored places that see declines, and probably already seeing declines. But that’s offset by more trending parts of the country that didn’t see as much of a pandemic boost that we probably still see price increases. But I think the risks are increasingly tilted towards national house price declines.”