An already ailing housing market could be in for more trouble as Goldman Sachs analysts warn the effect of high mortgage rates has not been fully felt yet, Business Insider reported.
“While existing home sales declined less rapidly than earlier in the year and home prices increased sequentially, we expect the deterioration in the housing market to reaccelerate in future prints,” the financial services giant said Thursday.
The warning comes as the housing market is currently in a turbulent state. A recent National Association of Realtors (NAR) recent report stated that existing-home sales decreased by 1.5 percent in September, down from a whopping 23.8 percent from the previous year. It was the eighth-straight month of sales decline to a seasonally adjusted annual rate of 4.71 million units.
But as Goldman Sachs analysts point out, the NAR’s report has not accounted for a lag in sales data.
Existing-home sales are generally not accounted for until a deal is complete, which takes approximately one to three months after a contract is signed. And since mid-August, the 30-year-fixed mortgage rate has increased by over 2.5 percent — from 5.13 percent to its current rate of 6.94 percent — which means that increased rates were likely not accounted for in September.
Moreover, since the federal reserve is predicted to hike interest rates by another 75-basis point, the 30-year fixed mortgage rate is likely to increase by more than eight percent this year, which will squeeze out more first-time home buyers and send the housing market into a deeper downward spiral, as Breitbart News Economy Editor John Carney writes.
The supply side of the housing market may also be affected, as developers are dissuaded from obtaining new permits to purchase new land due to increased rates and higher building materials costs, contributing to plummeting homebuilder sentiment.