The warning signals are flashing red for the U.S. housing market, according to Mark Zandi, chief economist at Moody’s Analytics. After weeks of cautious concern, Zandi has escalated his outlook, posting on X that he now believes the situation has shifted from a “yellow flare” to a “red flare”—a clear alert that trouble may soon hit not just homebuyers and sellers, but the broader economy as well.
“Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7% soon. That, however, seems unlikely,” Zandi wrote on X. He explained that the persistently elevated mortgage rate has become a significant hurdle for nearly everyone in the market, from first-time buyers searching for starter homes to older homeowners hoping to downsize.
Since January 2025, thirty-year mortgage rates have hovered between 6.60% and 7.04%. While mortgage rates were sometimes higher in decades past, that was offset by much lower home prices. The current combination of steep prices and high rates, Zandi noted, drastically narrows the pool of eligible buyers.
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The latest Census Bureau data offers little comfort. After a -9.7% drop in new residential construction was reported for May and a partial rebound with a +4.6% change in June, Zandi pointed out that Census’ large confidence interval means there’s no solid evidence of real progress; the changes could just as easily be flat.
The economist also observed that house price growth, which had been resilient, is finally giving out. “This, too, is changing, as prices have gone sideways and are set to fall,” Zandi wrote on X. He attributed the softening demand largely to the near-7% mortgage rate, emphasizing that a wave of new listings is increasing supply—likely pushing prices down further.
One driver of that growing supply, Zandi explained, is the reality confronting homeowners whose low pre-pandemic mortgage rates “lock” them in place. “Given their demographic and job situations, locked-in homeowners must move,” he said. “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.” Zandi made these remarks both on X and in comments to Fortune.
Zooming out to the broader economy, Zandi pointed to a concerning shift in consumer spending patterns. An internal Moody’s analysis of Bureau of Labor Statistics data revealed that about half of all spending comes from the wealthiest 20% of Americans. “They had powered spending coming out of the pandemic, but not recently,” Zandi wrote. The remaining 80% face ongoing struggles: sluggish income growth that barely matches inflation, higher credit card and mortgage rates and the return of student loan payments.
While affluent households were able to support the consumer market for a time, Zandi noted that their appetite for buying new homes is nowhere near sufficient to sustain the housing sector on its own.
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