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.
“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.
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.”
“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,” he said.
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.
“Residential 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,” Citi said.
