With mortgage rates remaining high and looking unlikely to drop much anytime soon, the housing market outlook is quickly deteriorating. Moody\u2019s Analytics chief economist Mark Zandi said he thinks a \u201cred flare\u201d is more appropriate for housing, just weeks after he sent off a \u201cyellow flare.\u201d Unless mortgage rates come down substantially, home sales, homebuilding and prices will slump, he warned.<\/p>\n
The housing market is getting so weak that it\u2019s poised to become a significant drag on overall economic growth, according to Moody\u2019s Analytics chief economist Mark Zandi.<\/p>\n
In a series of posts on X<\/a> last week, he noted that he sent off a \u201cyellow flare\u201d on the housing market just a few weeks ago but now thinks a \u201cred flare\u201d is more appropriate as the outlook is already deteriorating.<\/p>\n \u201cHome sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7% soon,\u201d Zandi warned. \u201cThat, however, seems unlikely.\u201d<\/p>\n Existing home sales unexpectedly rose in May, but still marked the slowest sales pace for any May since 2009, further evidence that the typically busy spring selling season has been a bust.<\/p>\n Meanwhile, sales of new single-family homes sank 13.7% in May from the prior month, and single-family housing starts dropped 4.6% in June, with permits down as well.<\/p>\n \u201cHome sales are already uber depressed, but homebuilders providing rate buydowns had been propping sales up,\u201d Zandi said. \u201cThey are giving up. It\u2019s simply too expensive. A big tell is that many builders are delaying their land purchases from the land banks. New home sales, starts, and completions will soon fall.\u201d<\/p>\n He added that home prices had also held up well, but are now going sideways and set to turn lower as near-7% mortgage rates crush demand.<\/p>\n In fact, the latest Case-Shiller home price<\/a> report showed a 0.3% monthly fall in the 20-city index in April, steeper than March\u2019s downwardly revised 0.2% dip.<\/p>\n And the latest Housing Market Index survey from the National Association of Home Builders<\/a> showed 38% of builders cut prices in July, up from 37% in June, 34% in May, and 29% in April.<\/p>\n Putting more downward pressure on prices is increased supply. Home listings have been climbing, as even homeowners with low, pre-pandemic mortgage rates eventually need to put those properties up for sale and buy new homes at higher rates.<\/p>\n \u201cGiven their demographic and job situations, locked-in homeowners must move,\u201d Zandi added. \u201cThey can only work around these needs for so long.\u201d<\/p>\n Story Continues <\/p>\n Conditions are so tepid that many homeowners who listed their properties are taking them off the market<\/a> after failing to find a buyer at the price they were offering.<\/p>\n Delistings are up 35% year to date and 47% year over year in May, outpacing active listing growth of 28.4% and 31.5%, respectively, according to a Realtor.com report this month<\/a>.<\/p>\n For Zandi, that all adds up to bad news for the overall economy, which is already feeling strains from President Donald Trump\u2019s tariffs<\/a>.<\/p>\n \u201cHousing will thus soon be a full-blown headwind to broader economic growth, adding to the growing list of reasons to be worried about the economy\u2019s prospects later this year and early next,\u201d he said.<\/p>\n Analysts at Citi Research issued a similar warning<\/a> in May, when they pointed out that the economist Ed Leamer, who passed away in February<\/a>, famously published a paper in 2007 that said residential investment is the best leading indicator of an oncoming recession.<\/p>\n Citi pointed to fewer permits for single-family-home construction and an increase in the effective supply of homes on the market amid weak demand. Median home prices of existing homes were also falling on a monthly basis.<\/p>\n \u201cResidential fixed investment is the most interest rate sensitive sector in the economy and is now signaling that mortgage rates around 7% are too high to sustain an expansion,\u201d Citi said.<\/p>\n