Is a housing downturn ahead? 🏠

[Goldman Sachs]( [BRIEFINGS] June 30, 2022 The Global Housing Market is Starting to Wobble as Central Banks Hike Rates The pandemic-induced housing boom appears to be cooling off. From Toronto to Auckland, [a slowdown in the housing market]( most interest-rate sensitive segment of the economy) is underway as interest rates in developed economies are set to climb rapidly, according to Goldman Sachs Research. Mortgage rates spiked sharply since last summer in the U.K., Canada, New Zealand and U.S., and given the likelihood of further rate hikes, borrowing costs for housing are likely to rise even further. The housing picture in many of these countries shows a stark change underway, with already substantial declines in sales across developed economies. Home sales are down by 40% from their pandemic peak in the U.S., and by half in the U.K. Those declines are meaningful for prices in the near future, as a 10 percentage point slowdown in house sales growth tends to be followed by a 2 percentage point slowdown in house price growth in around 6 months, Goldman Sachs Research estimates. And while house prices are still rising in the likes of the U.S., Germany and the U.K., they are already declining across Australia, Canada, Sweden and New Zealand. In the latter, home prices are now 8% down from their peak during the pandemic. In Canada, house prices have fallen the most in areas that had the most growth early in the pandemic. [Find out if a downturn in the housing market is a real risk by reading the full story.]( [Read article]( [Read more articles]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Global%20Housing%20Market%20is%20Starting%20to%20Wobble%20as%20Central%20Banks%20Hike%20Rates&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Farticles%2F) KKR’s Bae Is Seeking Assets with ‘CPI Protection’ Above (L to R): Alison Mass of Goldman Sachs and Joe Bae of KKR In an episode of [Exchanges at Goldman Sachs: Great Investors]( Joe Bae, co-CEO of KKR, one of the world’s leading private equity firms, shares his thoughts on the evolution of the private equity industry, what’s top of mind for CEOs and how the firm is navigating a challenging macro environment. How KKR’s private equity business was built. “It's much more than the capital. We need to be a solutions provider for our companies that we invest in, the management teams we partner with,” Bae explains to host Alison Mass, chairman of Goldman Sachs’ Investment Banking Division. “So this relationship building piece of it is critical,” he says. “The ability to help them on really complicated things like ESG, like diversity, like global supply chains around geopolitical complexity around the world today.” Companies are focusing on supply chain resiliency. “What you're seeing right now is a lot of companies, a lot of CEOs talking about supply chain resiliency,” Bae notes. “And as geopolitics ebb and flow, I think that resiliency is going to be critical for stability.” KKR is looking for investments that can weather inflation. “Today, it's very much around margins and cost and inflation,” Bae says. “We're looking for businesses that are very resilient that have pricing power…We're looking for businesses that have real CPI protection. So infrastructure as an asset class has been a major area of investment for us. We're looking at really durable long-term themes. So digitization, digital infrastructure, software investments have been huge. We're looking for areas like food safety and ESG and even climate where we know there are long tailwinds into the growth and penetration of those sectors.” Subscribe wherever you get your podcasts [Spotify]( | [Apple]( | [Google]( | [Stitcher]( [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Investing%20With%20KKR%20Co-CEO%20Joe%20Bae&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DbZ6wGzglbB8%26list%3DPLIyiGQywEp66lKvfhiDbiuZnCboYneuX2%26index%3D2) Wage Inflation in the US May Have Already Peaked Jaws dropped when the [latest report]( on consumer price inflation arrived, clocking its biggest year-over-year jump in the U.S. since 1981. That and other economic data points contributed to the Federal Reserve’s decision on June 15 to make its biggest rate hike since 1994. But there are signs that labor shortages — a key driver of overall inflation — may have peaked months ago, according to Goldman Sachs Research. The shortfall in workers may have peaked at “an extremely elevated level” in March, according to Daan Struyven, co-leader of research on the global economy at Goldman Sachs in New York. Since then the jobs-workers gap — which is the difference between the total number of jobs (in other words, employment plus job openings) and the total number of workers — has started to edge down. Struyven says this metric is the best predictor of wage growth. “It’s very intuitive for capturing the balance of the bargaining power of workers versus employers,” Struyven says. “If there are a lot of vacancies and very few people who are looking for a job, that suggests workers have the upper hand and bargaining power and that should put upward pressure on wage growth.” Wage growth is a critical part of overall inflation, and it’s also the piece that the Fed can influence. While the central bank has little to no impact on global goods and commodity prices, the Fed is able to slow economic activity and employment growth by raising short-term interest rates and tightening financial conditions. The services sector is especially labor intensive, and wages are two-thirds of the cost structure in the U.S. economy. “That’s why it’s intuitive that wages are a key driver of the outlook for inflation,” Struyven says. [In our video, Struyven says this measure is the best predictor of wage growth.]( [Read article]( [Read more articles]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Wage%20Inflation%20in%20the%20US%20May%20Have%20Already%20Peaked&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Farticles%2F) Hack Attacks Spur Investments, M&A in Cybersecurity The scale and sophistication of cyberattacks are rising exponentially, but so are the levels of investment, innovation and corporate activity in the space. In the latest [Exchanges at Goldman Sachs]( David Campbell, who invests in growth equity companies for the Goldman Sachs Asset Management Division, and Marco Poletti, head of Cybersecurity Investment Banking, discuss how companies’ and investors’ approaches to the sector have evolved. Investments in cybersecurity start-ups are up — but so are valuations. “There was over $30 billion invested in cybersecurity companies last year, so it is a very well-funded space,” Campbell tells Exchanges host Allison Nathan. “The challenge is there are literally thousands of businesses out there. The way we approach it is we're looking for things that have some longevity because typically valuations are quite high even in very early stages of these businesses.” Mergers and acquisition deals are also surging. “We saw about $70 billion of M&A volume for cybersecurity in 2021, and that number was four times what we saw in 2020,” Poletti says. “I would expect that that level to stay at a relatively high mark for the foreseeable future.” As cyberattacks evolve, so are cybersecurity defenses. “The challenge is, as it's always said, the attackers only have to get through once and succeed once; the defenders have to succeed 100% of the time,” Campbell says. “We are starting to see AI and ML technology leak into the cyberdefense space to try and keep ahead of the attacks.” Subscribe wherever you get your podcasts [Spotify]( | [Apple]( | [Google]( | [Stitcher]( [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Cybersecurity%20Deals%20Surge%20Amid%20Rising%20Attacks&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DlsdviE7WvRY%26list%3DPLIyiGQywEp66lKvfhiDbiuZnCboYneuX2%26index%3D1) BRIEFINGS Brainteaser: A Red, White & Blue Road Trip Despite elevated gas prices, Americans will travel by car in record numbers for the July 4 holiday weekend, according to the American Automobile Association. For this week’s BRIEFINGS brainteaser, can you tell us how many Americans are expected to take a road trip of 50 miles or more for the holiday? A) 42 million B) 47 million C) 55 million D) 69 million [Check your answer.]( [Take quiz]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=BRIEFINGS%20Brainteaser%3A%20Prices%20at%20the%20Pump%20For%20July%204&body=https%3A%2F%2Fonegs.iad1.qualtrics.com%2Fjfe%2Fpreview%2FSV_eKE1ZVhKkYm8W6G%3FQ_CHL%3Dpreview%26Q_SurveyVersionID%3Dcurrent) Goldman Sachs Media Highlights Axios - June 29 [Goldman taps Buffett, Paltrow in small biz push]( CNBC - June 27 [Oil price cap will create a loss of supply, says Goldman Sachs’ Jeff Currie]( (4:52) Bloomberg - June 27 [Goldman’s Hatzius: US recession likely to be shallow]( (7:34) Yahoo - June 24 [Goldman Sachs to pay travel expenses for US employees seeking abortion services]( [Subscribe]( [Unsubscribe]( Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. To the extent this newsletter includes material from the Goldman Sachs Securities Division, please click [here]( for information relating to Securities Division material and your reliance on it. 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