(Bloomberg) -- Goldman Sachs ended a recommendation to short UK real estate stocks, saying the housing market is stabilizing and interest rates should start to come down from next summer.

“The real estate market is holding up: housing prices edged up last month amid encouraging signs that mortgage rates are starting to come down,” strategists including Sharon Bell wrote in a note to clients. They removed their advice to bet against the sector, while also downgrading European banks to neutral on the rates outlook.

The move comes as economists at the lender predict the Bank of England will cut its main interest rate in August and then again for several consecutive quarters as inflation cools. Real estate has been highly affected by rate hikes due to the impact on mortgage costs, the sector’s heavy debt load and tumbling valuations of commercial property as the economy weakened. 

Goldman introduced an underweight rating on a UK real estate sub-sector basket in June, as part of its second-half outlook. The basket has gained 11% since then, while the FTSE 350 Real Estate Investment Trusts Index is up more than 5%.

Data today from property sales portal Rightmove showed that UK home sellers slashed asking prices in December, indicating a slow start for the market next year. But the slump in house prices that was predicted for 2023 hasn’t materialized, with a strong job market limiting the number of forced sales.

©2023 Bloomberg L.P.