Goldman Asks: Will The Fed ‘Put Out the Housing Fire?’
Notwithstanding what one has to believe is an internal plan at the Fed to cool a US housing market turbocharged by monetary largesse, nominal home price declines aren't likely. Or at least not at the national level.
That's according to Goldman, whose Ronnie Walker addressed one of the most pressing questions facing the world's largest economy as Jerome Powell embarks on an ambitious quest to tame an inflation dragon dormant for a generation.
Mortgage rates are up nearly two full percentage poi
Price of housing is not solely dependent on mortgage rates. Demographics and income play a very signifcant role. Also supply was suppresed for a long time post GFC. So a scenario where prices are flat for 3-5 years, even though nominal income grows seems reasonable. Supply will catch up to demand over the next few years and the positive demographics should also decline as millenials age. The last crash was largely a lax lending situation. Right now we are not seeing that play out. The FOMC will succeed in slowing things down, probably all too well. Right now the market is tightening up conditions more than the FOMC. Watch out for credit spreads- if you see high/medium grade bond spreads widen vs. UST bonds that is likely to be the Wiley Coyote moment…..
Yeah, they mention other factors. To wit, from Walker: “While there could be outright price declines in some regions under our current economic baseline, our expectations for elevated inflation, still-restrained homebuilding, and a continued demographic tailwind from millennials passing through their prime home-buying years make nominal price declines at the national level, a historical rarity, seem unlikely over the next couple years.”
Yes, their analysis is fair. I would expect that the housing markets won’t have a correlation of 1 either. I saw a story about the Boise, Idaho market – one of the hot spots cooling off rapidly. Some of those moonshot local markets like Boise, Austin, etc. will probably come off the boil. My understanding is that NYC prices have improved lately- so some of the laggards like NYC and SF may still have some room to run. The fact that the correlations are not 1 is actually a sign of a healthy nationwide housing market. It is when markets are hyper correlated that you have a scary situation- either on the upside or the downside- just like financial markets. As I live in NYC it is becoming increasingly evident that activity is picking up in the commercial areas here. I can see it when I take the subway during rush hour to Manhattan- not like it was pre-covid but the bounce back is picking up and becoming more apparent. Perhaps we will get more covid waves, but it looks like successive waves are not as scary as previous ones and that folks are adjusting to the new reality. The kids (recent grads especially) are comng back- as more entertainment venues open up, the draw of the city will become more apparent.