Top economist sounds the alarm even louder on the housing market and says homebuilders are ‘giving up’

• With mortgage rates remaining high and looking unlikely to drop much anytime soon, the housing market outlook is quickly deteriorating. Moody’s Analytics chief economist Mark Zandi said he thinks a “red flare” is more appropriate for housing, just weeks after he sent off a “yellow flare.” Unless mortgage rates come down substantially, home sales, homebuilding and prices will slump, he warned.

The housing market is getting so weak that it’s poised to become a significant drag on overall economic growth, according to Moody’s Analytics chief economist Mark Zandi.

In a series of posts on X last week, he noted that he sent off a “yellow flare” on the housing market just a few weeks ago but now thinks a “red flare” is more appropriate as the outlook is already deteriorating.

“Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7% soon,” Zandi warned. “That, however, seems unlikely.”

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.

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.

“Home sales are already uber depressed, but homebuilders providing rate buydowns had been propping sales up,” Zandi said. “They are giving up. It’s 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.”

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.

In fact, the latest Case-Shiller home price report showed a 0.3% monthly fall in the 20-city index in April, steeper than March’s downwardly revised 0.2% dip.

And the latest Housing Market Index survey from the National Association of Home Builders showed 38% of builders cut prices in July, up from 37% in June, 34% in May, and 29% in April.

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.

“Given their demographic and job situations, locked-in homeowners must move,” Zandi added. “They can only work around these needs for so long.”