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It has been 16 years since the subprime mortgage bubble popped and the U.S. housing market crashed.
That has people on edge about the another bubble in the housing market, particularly with higher interest rates pressuring sale activity after home prices skyrocketed 20% during the pandemic.
But while prices could struggle for momentum, another big blowup in the estimated $44.5 trillion U.S. housing market looks unlikely, according to Goldman Sachs.
A big reason for their call is that most homeowners refinanced at ultra low pandemic rates before the 30-year fixed mortgage rate topped 7%. That’s helped cushion many families from higher rates in 2023, unlike when the Federal Reserve was raising rates in some 15 years ago and the proliferation of “affordability” products in mortgage finance, including adjustable-rate mortgages, backfired.
This chart shows that mortgages created with low or no financial documentation have been almost nonexistent in recent years. The share of homes financed in the private market, or outside of the government’s stricter postcrisis lending standard, also has been fairly low, even as home prices shot up after 2020.
Home prices shot up before the crash 16 years ago and again during the pandemic, but a repeat crash looks unlikely, says Goldman Sachs.
CoreLogic, Black Knight, Goldman Sachs Investment Research
“Today, most loans originated in the mortgage market have fully-documented borrowers,” wrote Lotfi Karoui’s credit research team at Goldman.
Still, investors worry about the rapid-fire home-price appreciation and policy makers have concerns that resilience in the housing market could require even higher policy rates from the Fed, the team said.
Their take is that a strong labor market, a very low borrower delinquency rate and low supply of homes due to a decade of underbuilding will keep home prices rising modestly in 2023 and 2024 “absent any negative shocks to the broader economy.”
Investors have been focused on the sharp rise in long-term rates that finance the economy in recent weeks, with the 10-year Treasury yield
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recently returning to a 16-year high and the 30-year Treasury rate
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briefly topping 5%.
Stocks
DJIA
COMP
were mostly lower Wednesday ahead of the release of Fed minutes from a September policy meeting, where the policy rate was kept at a 22-year high in the 5.25%-5.5% range.
