The U.S. housing market is showing signs of a significant slowdown, with a sharp decline in sales and a potential threat to the economy, according to Moody’s.
What Happened: The housing market, which had been resilient for several years, is now displaying concerning indicators such as a surge in listings, a decrease in home sales, and a halt in price growth, reported The Street on Tuesday.
Moody’s chief economist, Mark Zandi, has issued a stark warning, stating that the “red flare” is signaling a high alert for the housing market.
He highlighted that home sales are already at a low point, and even builders, who have been propping up the market, are now looking to step back. Additionally, the cost of lowering mortgage rates has become prohibitive, leading to builders walking away from land deals, a significant warning sign.
Zandi believes the housing market's weakness is poised to deepen. With mortgage rates stuck near 7%, he warned that a sharp drop in home prices, new construction, and project completions could follow. What was once a key engine of economic growth is now becoming a major drag on the broader economy.
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After years of pandemic-driven demand and tight inventory, the U.S. housing market is now showing clear signs of strain. Supply remains below healthy levels, while active listings jumped 29% in June and homes are sitting on the market longer. Major cities like Austin and Denver have seen listings surge over 50% from 2019.
Sales are falling fast — new single-family home sales dropped 13.7% in May, and construction is slowing amid rising costs. Builder confidence has hit its lowest point since early 2023, with land deals paused and project delays mounting.
Prices are beginning to soften as well. The Case-Shiller index has edged down since February, with annual growth shrinking to just 2%, the weakest since 2012. Affordability remains a major hurdle, with first-time buyers now needing over $126,000 a year to afford a median-priced home.
Why It Matters: This development comes on the heels of a series of warnings and challenges in the U.S. housing market. In April, Zillow reported a disparity between the number of sellers and potential buyers, driven by affordability concerns.
This led to a rise in inventory and possible price reductions.
In June, Economist Craig Shapiro called for a national housing policy overhaul, arguing that the housing market had become an “over-subsidized, under-scrutinized asset class in America.”
In February, mortgage rates dropped to their lowest level since December 2024, with the average 30-year fixed rate falling to 6.88%. Despite the decline, demand for home loans remained weak.
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