Slow home sales, high rates and other challenges in the housing market prompted an economist this week to issue a stark warning about the state of the industry.
According to Moody’s Chief Economist Mark Zandi, homebuyers — and homebuilders who’ve rushed to move them from the sidelines — may have reached their breaking points.
Mark Zandi | Credit: LinkedIn
“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,” he said in a thread on X, the site formerly known as Twitter. “Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7 percent soon. That, however, seems unlikely.”
Mortgage rates are back on the climb, with the average 30-year fixed-rate mortgage clocking in at 6.79 percent on Tuesday. Rates have increased by 15 basis points, or 0.15 percent, this month, and are now 31 basis points, or 0.31 percent, above a recent low of 6.48 percent recorded on April 3, 2025. The increases are largely credited to the Trump Administration’s frequently shifting tariff policy.
“The prospect of higher tariffs has driven up mortgage rates because investors in mortgage-backed securities (MBS) that fund most home loans are wary that they’ll rekindle inflation,” an Inman report from July 16 read. “Federal Reserve policymakers have said they’re waiting to see what impact tariffs will have on inflation before resuming interest rate cuts they began last year.”
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Zandi said homebuilders have been propping up “uber depressed” home sales with rate buydowns, which enable homebuyers to permanently or temporarily. One mortgage point usually costs 1 percent of a loan and permanently lowers the interest rate by about 0.25 percent, according to a 2024 Inman explainer.
However, homebuilders are “giving up” on buydown incentives due to their cost-prohibitiveness.
“It’s simply too expensive,” he said. “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.”
The Moody’s analyst said mortgage rates aren’t the only warning signal, with home price and jobs trends also pointing toward a rock-bottom moment.
Pending and existing-home sales barely held on in May, with the National Association of Realtors reporting month-over-month gains of 1.8 percent and 0.8 percent, respectively.
“House price growth had held up well. But this, too, is changing, as prices have gone sideways and are set to fall. Seven percent is hammering demand, and there are more listings,” he said. “Given their demographic and job situations, locked-in homeowners must move. They can only work around these needs for so long.”
“Housing will thus soon be a full-blown headwind to broader economic growth,” he said, “adding to the growing list of reasons to be worried about the economy’s prospects later this year and early next.”
