Developed economies are seeing "substantial declines" in home sales
The housing market boom that came about during the pandemic is now seemingly cooling off, according to a new analysis by Goldman Sachs.
“Mortgage rates spiked sharply since last summer in the UK, Canada, New Zealand and US; and given the likelihood of further rate hikes, borrowing costs for housing are likely to rise even further,” Goldman Sachs said.
Virtually all developed economies are now seeing “substantial declines” in home sales, with slowdowns of as much as 40% from the pandemic peak in the United States.
“In Canada, house prices have fallen the most in areas that had the most growth early in the pandemic,” Goldman Sachs said, adding that it is anticipating Canadian prices to see a peak-to-trough decline of 12%.
“Those declines in home sales are meaningful for prices in the near future because a 10% point slowdown in house sales growth tends to be followed by a 2% point slowdown in house price growth in around six months,” Goldman Sachs estimated.
Read more: Canada house prices – StatCan reports the latest
Canadian market conditions, in particular, represent a perfect storm that bodes ill for the housing sector’s prospects.
“The slowdown will be sharpest in Canada due to weak recent momentum, low affordability, and rapid policy hikes by the Bank of Canada,” Goldman Sachs said.
These trends will offset any advantages that strong demand might offer, the report warned.
“While a tight housing market may be enough to avoid a slump, the rapid deterioration in affordability and large drops in home sales suggest that a housing downturn is a real risk,” it said.
