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By Hugh Cameron
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A leading economist has issued a stark assessment of the U.S. housing market, battling issues in both construction and sales, and warned that this could soon affect the entire U.S. economy.
"I sent off a yellow flare on the housing market in a post a couple of weeks ago, but I now think a red flare is more appropriate," Moody's Chief Economist Mark Zandi wrote on X, formerly Twitter.
Why It Matters
The "red flare" warning—indicating major instability and the risk of a further downturn—comes against the backdrop of a slowdown in new construction activity and sales, plus a market that some experts had warned at the beginning of this year was already facing extreme difficulties.
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As Zandi wrote on Sunday, the issues facing the housing market could easily drip into the wider economy, serving as a "full-blown headwind" to growth and exacerbating fears over a recession within the coming months.
What To Know
Zandi, who has this year sounded several alarms about the health and trajectory of the U.S. economy under President Donald Trump, said his concerns were raised by persistently high mortgage rates, which had exerted pressure on several aspects of the housing market.
"Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7 percent soon," Zandi wrote.
He added that home sales in the U.S. were already "uber depressed." According to the latest report by the Census Bureau, new home sales fell sharply in May, with sales of new single-family houses dropping 13.7 percent month on month and 6.3 percent below the rate in May of last year.
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Putting further downward pressure on this, according to Zandi, is the fact that homebuilders are now "giving up" on providing rate buydowns—up-front money to reduce the mortgage interest rates for a buyer, which lowers monthly payments—as these are becoming "simply too expensive."
A concerning development, he said, was the fact that "many builders are delaying their land purchases from the land banks." As a result, "new home sales, starts, and completions will soon fall," he wrote, adding that mortgage rates—which are hovering just under 7 percent of 30-year and 20-year fixed mortgages—are "hammering demand."
The housing market is now among the growing list of economic weak spots Zandi has highlighted in recent months.
Other areas of concern include persistently weak consumer spending and tariffs, along with their potential effects on inflation. Together, these have contributed to Moody's recently raising its recession probability forecast to almost 50 percent within the next 12 months.
What People Are Saying
Moody's Chief Economist Mark Zandi wrote on X: "Housing 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's prospects later this year and early next."
What Happens Next
Bill Pulte, the director of the Federal Housing Finance Agency, has echoed Zandi's calls for lower mortgage rates.
Pulte has blamed the Federal Reserve and its chair, Jerome Powell, for failing to lower interest rates—which have an indirect influence over mortgage rates. Pulte has said the move would make housing more affordable.
However, Zandi said the prospect of mortgage rates declining "materially" in the near future "seems unlikely."
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