Homes and vehicles are two big-ticket items that most American families will require financing to obtain.
There’s some good news – and bad news – when looking at both assets in the next two years, according to Goldman Sachs.
Many forecasters expect US home prices to edge up to new post-pandemic highs, despite a near doubling of the 30-year mortgage rate. On the other hand, prices for used cars have already shown signs of normalizing (see chart) as supply chains untangle and dealer inventories restock.
Easing pressures in the white-hot market for vehicles since 2020 could be an encouraging sign for the Federal Reserve as it prepares to fire off another big interest-rate hike later this month, in a bid to cool inflation that climbed to a 40-year high of 8.6% in May.
The May consumer-price index indicated prices for used-cars and trucks rose 16.1% in a year, with investors nervously awaiting a fresh reading for June due next Wednesday.
Goldman Sachs analysts, in a weekly client note, said they view mortgage credit exposure as more attractive than consumer credit, given their economists forecasting used-car prices to tumble 7% by year’s end 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.
Economists at the bank forecast home prices to gain 9.4% in the fourth quarter of 2022 from a year before, and another 1.8% in 2023.
Americans have been tapping credit at a rapid pace recently, raising some concerns about the potential for blowback, given that most U.S. consumer debt is sliced-and-diced into bonds that are then sold to investors.
The delinquency rate of subprime auto loans in asset-backed bond deals climbed to 4.35% in June, up 159 basis points on an annual basis, according to Barclays Research.
Read: FTC proposes new rule to eliminate ‘deception’ and ‘fraudulent add-on products’ in car-buying process
were higher Friday, in a choppy session, after a strong June jobs report reignited debate about whether the Fed should adopt an even more aggressively rate-hiking path.
Read: Every rose has its thorn: Strong US jobs report contains a few troubling signs