Investment Banking Giant Sounds a Warning: The Housing Market Has 'Further to Fall'

Talk about a harsh wake-up call for sellers.

There's a reason sellers have had such a huge advantage over buyers over the past few years. The real estate market has lacked inventory in a very big way. Meanwhile, the supply of available homes began to dwindle at a time when mortgage rates began falling to record lows. That sparked a huge gap between supply and demand that drove home prices way up.

Sellers have still enjoyed their fair share of gains this year. But home price gains are clearly slowing. In August, for example, home prices rose 13% on a year over year basis, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. But that's a slower pace than what sellers enjoyed in months prior.

Meanwhile, investment banking giant Goldman Sachs recently issued a warning about the housing market. Specifically, it expects the market to slow sharply in the coming months as buyer demand wanes.

Should sellers be worried?

Goldman Sachs expects home price gains to stall completely and average 0% in 2023. That's not the best of news, as it could mean that sellers will end up walking away with a lot less money in the coming year.

Why such a gloomy outlook? It has to do with the laws of supply and demand. The whole reason home prices soared in 2020 and 2021 is that the real estate market didn't have enough inventory to meet buyer demand.

Right now, inventory is still down compared to normal levels. But as more and more buyers drop out of the market due to factors such as rising mortgage rates and recession fears, the gap between supply and demand is apt to narrow. And once buyer demand wanes enough to allow for an adequate supply of listed homes, sellers will lose much of the edge they've enjoyed over the past two years.

Sellers should get moving

If you're interested in selling your home, then the time to act might be now. We're already at a point where mortgage rates are the highest they've been in several decades, and that alone is impacting buyer interest. But at least we're not in a recession right now.

That could change in 2023, and many financial experts are convinced that economic conditions will take a notable turn for the worse in the new year. If a recession hits and spurs a wave of unemployment, it will only drive more buyers out of the market. And so it's best to get ahead of that scenario by listing your home while the economy is still holding steady and the labor market is still solid.

That said, anyone looking to sell a home today will need to make sure to price it carefully. Sellers are no longer getting away with the exorbitant prices they were able to command when buyer demand was at its peak. If you're looking to sell, it pays to team up with a seasoned real estate agent who can help price your home appropriately and get you the most money for it.