Mark Zandi, Chief Economist at Moody’s Analytics, is raising fresh concerns about the U.S. housing market, warning it could pose a broader threat to economic stability.
Zandi said he is now sounding a ‘red alert’ after previously flagging the sector as a yellow warning. The shift in outlook is largely driven by high mortgage rates, which are hovering near 7%, straining both buyers and builders, he said in an X post on July 13.
Zandi noted that while home sales have already slumped, builders had been sustaining momentum by offering mortgage rate buydowns.
However, that tactic is becoming unsustainable as costs continue to rise. A troubling sign, he said, is that many homebuilders are delaying land purchases, often a signal that new sales, starts, and completions are likely to decline.
Home prices set to flatline
After holding steady for much of the past year, home prices are now expected to flatline and potentially decline. Elevated mortgage rates are suppressing demand, while rising inventory suggesting cracks are forming in the market’s resilience.
Additionally, Zandi emphasized that housing, once a pillar of the post-pandemic recovery, has now become a drag on economic growth.
If current trends persist, the sector could soon become a major headwind, adding to fears about the economic outlook heading into late 2025 and early 2026.
“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.
Escalating recession concerns
The housing sector joins a growing list of warning signs Zandi has flagged in recent months. As reported by Finbold in May, he previously warned of a tough 2025, citing risks from escalating trade tensions and the likelihood of a global slowdown.
That concern has resurfaced, with President Donald Trump threatening to impose new tariffs as early as August 1.
Although recession fears had cooled somewhat following recent U.S. trade agreements, Zandi cautioned that downside risks remain high. According to Moody’s machine learning model, the probability of a recession within the next 12 months still stands at 45%.
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