Housing Market Plunges: Economist Issues ‘Red Flare’ as Builders Retreat
Housing Market Plunges: Economist Issues ‘Red Flare’ as Builders Retreat
The U.S. housing market is flashing a stark “red flare,” with a rapid deterioration now poised to significantly drag down overall economic growth, according to Moody’s Analytics chief economist Mark Zandi. Just weeks after his initial “yellow flare” warning, Zandi asserts that unless mortgage rates substantially decline from their current near-7% levels, home sales, new construction, and prices are set for a steep slump.
Recent data paints a grim picture: existing home sales in May, while unexpectedly up, marked the slowest pace for that month since 2009. New single-family home sales plummeted 13.7% in May, and housing starts dropped 4.6% in June. Compounding the crisis, the latest Housing Market Index reveals 38% of builders cut prices in July, up from 37% in June, indicating a widespread retreat from expensive rate buydowns that previously propped up sales.
Zandi warns that homebuilders are “giving up,” delaying land purchases, which will soon lead to further declines in new home sales, starts, and completions. Even home prices, previously resilient, are now stagnant and expected to fall, evidenced by a 0.3% monthly dip in the Case-Shiller 20-city index in April. Increased supply from homeowners who, despite low pre-pandemic mortgage rates, are forced to move, is adding further downward pressure. The current high rates are effectively crushing demand, pushing the market into a critical downturn.
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