Home prices could rise further, but car values set to fall after pandemic peak: Goldman
Homes and vehicles are two big-ticket items that most American families will need financing to obtain.
According to Goldman Sachs, there’s good news — and bad news — looking at both assets over the next two years.
Many forecasters expect U.S. home prices to hit new post-pandemic highs, despite a near doubling of the 30-year mortgage rate. On the other hand, used car prices have already shown signs of normalizing (see chart) as supply chains unravel and dealer inventories replenish.
Used car prices show signs of normalizing after two years of boom
Goldman Sachs Investment Research, Manheim Vehicle Price Index
The easing of pressures in the white-hot vehicle market since 2020 could be an encouraging sign for the Federal Reserve as it prepares to trigger another sharp interest rate hike later this month, in the purpose of calming inflation which has soared for 40 years. high of 8.6% in May.
The May consumer price index indicated that prices for used cars and trucks rose 16.1% year on year as investors nervously awaited a new reading for June, due next Wednesday.
Goldman Sachs analysts, in a weekly client note, said they viewed exposure to mortgage credit as more attractive than consumer credit, given that their economists forecast used car prices to fall by 7% by the end of the year and 18% by the end of 2023.
“The risk of a similar correction in the single-family housing market is remote, in our view,” wrote Lotfi Karoui’s credit research team at Goldman.
The bank‘s economists forecast house prices to rise 9.4% in the fourth quarter of 2022 from a year earlier, and another 1.8% in 2023.
Americans have been tapping into credit at a rapid pace recently, raising concerns about the potential for a backlash, given that most US consumer debt is cut into bonds which are then sold to investors.
The delinquency rate for subprime auto loans in asset-backed bond transactions climbed to 4.35% in June, up 159 basis points on an annual basis, according to Barclays Research.
Lily: FTC proposes new rule to eliminate ‘deception’ and ‘fraudulent add-ons’ in car buying process
SPX Stocks,
DJIA,
were higher on Friday in a choppy session after a strong June jobs report reignited debate over whether the Fed should take an even more aggressive rate hike path.
Lily: Every rose has its thorn: Strong US jobs report contains some troubling signs