Housing Market Nears Crisis Point as Economist Issues “Red Flare” Warning
Housing Market Nears Crisis Point as Economist Issues “Red Flare” Warning
The U.S. housing market is rapidly deteriorating, prompting Moody’s Analytics chief economist Mark Zandi to issue a stark “red flare” warning, indicating a significant drag on overall economic growth. Just weeks after his initial “yellow flare,” Zandi now believes the outlook has worsened considerably.
In recent analyses, Zandi emphasized that a substantial decline in mortgage rates from their current near-7% levels is crucial to prevent a slump in home sales, homebuilding, and prices. However, he sees this as unlikely.
Recent data underscores the severity: existing home sales in May marked the slowest pace for that month since 2009, while new single-family home sales plummeted 13.7% month-over-month. Single-family housing starts also dropped 4.6% in June, with permits following suit. Builders, who had been propping up sales with rate buydowns, are now “giving up” due to prohibitive costs, leading to delays in land purchases and anticipated drops in new home sales, starts, and completions.
Home prices, previously resilient, are now stagnant and expected to fall as high mortgage rates crush buyer demand. The Case-Shiller 20-city index showed a 0.3% monthly decline in April. Further, the National Association of Home Builders’ latest survey for July revealed that 38% of builders are cutting prices, a consistent increase from previous months, signaling growing desperation.
Increased supply, as even homeowners with low rates are forced to sell, combined with a surge in delistings (up 35% year-to-date in May) due to failed sales, is adding further downward pressure. Zandi concludes that housing will soon become a major headwind for broader economic growth, compounding existing concerns for the economy’s prospects later this year and early next.
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