- Although mortgage rates and home prices are rising, Goldman Sachs does not see another default crisis.
- The bank mentioned new credit regulation that was a result of the 2008 housing crash. This will likely protect the market from defaults.
- “Our analysis indicates that there is no likelihood of a significant increase in delinquency rates over the next year.”
While mortgage rates have risen and home prices fell this year due to rising mortgage rates, you shouldn’t expect another default crisis. 2008 housing crashAccording to Goldman Sachs, it is.
“Robust financial quality is probably the main reason to not expect a default on mortgage loans.” “The 2008 mortgage and housing crisis caused a significant rise in mortgage credit quality,” said economists at the investment bank in a Tuesday note. They were referring to regulations that prevent risky subprime loans.
The note considered the US and other English-speaking countries and suggested that new rules such as minimum credit scores for mortgages or restrictions on loan amounts will help to protect housing markets.
This is despite a tough year for the housing industry. US mortgage rates soaring past 7%Ask experts Alarms sounding for potential housing crashes. It has been driven largely by aggressive rate increases from the Federal Reserve and other central bank as they struggle to control inflation.Â
This has already lowered US mortgage rates by nearly 400 basis points. Goldman pointed out, however, that most US mortgage rates are fixed and not floating, so it is unlikely that defaults will result from the surge.
The note also states that the US housing market is less at risk of experiencing a rate shock than countries like Canada, the UK, and Australia where floating rates are more prevalent.
The Fed’s rate increases could also be a concern Increase unemploymentGoldman stated that while there are more defaults on mortgages in the US, those risks are still “quite low” when compared to other countries. In the US, a 100-basis-point increase in unemployment would lead to just a 10-basis-point increase in mortgage delinquency – below levels estimated in Australia and Canada.
While The home price has fallenIt’s unlikely that this will lead to strategic defaults. This is when a borrower stops paying mortgage payments because the property’s value has declined. Goldman cited a study by the National Bureau of Economic Research, which found that only 6% of US mortgage defaults are strategic. This means that falling home prices will only moderately increase mortgage defaults.
According to the bank, “Our analysis suggests that there is not likely to be a significant increase in delinquency rates over the next year.”
