Friday, June 15, 2018

Goldman: "Upside Risk to Home Prices"

by Calculated Risk on 6/15/2018 05:51:00 PM

This is an interesting note today from Goldman Sachs economists Daan Struyven and Marty Young: Upside Risk to Home Prices (A few excerpts):

Home prices are growing at a 6.5% annual rate, the fastest pace since 2013. ... we review trends in housing demand, supply, and financing fundamentals and analyze their importance using city-level data.

On the demand side, we find that home prices are rising most rapidly in the strongest regional labor markets and we think a firm national job market will continue to be a tailwind. On the supply side, price growth is higher in the lowest vacancy markets and we expect national supply to remain constrained. On the financing side, we expect only a limited impact on home prices from higher interest rates—which mostly reflect strong growth—in the near term and find little evidence of a drag from reduced tax benefits of homeownership.

... Overall, we see the risks to our 3% home price growth forecast over the next year as skewed to the upside.
CR Note: It is important to note that this is an "upside risk" to Goldman's fairly low 3% forecast for 2018.   My view was house prices would slow this year to the low-to-mid single digit range from the 6.2% annual gain in 2016 (Case-Shiller National Index). That was based on more inventory (it appears inventory has bottomed at a low level) and a little headwind from higher mortgage rates and tax changes.